It is possible that at some point in the next couple of years, Australia will lose its AAA credit rating. While this would be a huge blow for whichever political party is in power at the time, it wouldn’t be a big deal for the economy or the financial markets. The dollar is unlikely to fall sharply and government bond yields are unlikely to surge.
After all, the dollar was broadly stable in the years after Australia lost its AAA rating in 1986 and bond yields fell steadily throughout the AA years. What’s more, this isn’t unusual. After America was stripped of its AAA rating in 2011, the US dollar rose and bond yields fell.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
