The Australia’s center-left government unveiled an unexpected tax cut and an extension of energy rebates in the pre-election budget in what looks like an attempt to shore up political support and help secure Prime Minister Anthony Albanese a second term in office.

The Australian Dollar and Australian Bond Yields got a boost from the news as it could make the RBA’s job of bringing inflation sustainably back to target and lower interest rates harder.

As a reminder, the RBA cut
interest rates by 25 bps as expected at the last meeting bringing the Cash Rate
to 4.10% but it was accompanied by a more hawkish than expected guidance. We
got a weak Australian Employment report last week which weighed on the AUD although it
didn’t change the market’s pricing much as the focus remains on more inflation
progress.

Tomorrow we have the monthly Australian CPI data where an upside surprise could further boost the AUD.