Forex Fundamental Analysis

Everything You Should Know About ‘Government Budget Value’ Fundamental Indicator


Regardless of the country, the respective governments have a pivotal role to play in economic growth for a given year. The vast resources at the disposal of the nation and state’s government, when combined with effective planning and action, has yielded phenomenal results for many countries’ growth. Understanding the government budget and its role in economic growth helps us to predict how conducive the market place will be for economic growth for the fiscal year.

What is Government Budget Value?

Budget: A budget is a periodic estimation of revenue and expenses for a specified period. The time-frame can be monthly, quarterly, or even yearly. A budget can be drafted for an individual, a group, a business, the government, or anything else that has cash in-flow and out-flow.

Government Budget: When we refer to the term budget, it is generally associated with the local or central government. The Government Budget refers to the estimated or forecast of its expenditures and revenue for a particular period. The time-frame generally for which it is estimated is for a financial year, which may or may not coincide with the calendar year. The combined income and outlays of a government for a fiscal year make up the government budget.

Government Budget Value: Here, the government budget value refers to the actual dollar value of the entire budget. We are referring here to the raw or direct numerical dollar value of the total budget. The budget is drafted as per the plans and obligations of the government for the fiscal year. The government has obligations like paying out social security funds, interests, and principal on its debts, purchasing military equipment for national security, and other mandatory spending programs. The government receives incomes from interests on its investments, revenue from taxes, fees collected from government services offered, etc.

All these income sources, outlays are all detailed in the government budget report. It is analogous to a bank statement of an individual except that it is for the entire government as a single entity, and the transaction values would be in millions and billions of dollars.

How can the Government Budget Value numbers be used for analysis?

In the budget report, if the revenues exceed the expenditures, then it is called a budget surplus. When the expenditures exceed the revenue, it is called a budget deficit. When both the revenue and expenditure level off and are equal, it is called a budget balance. All three scenarios have different meanings and implications.

When there is a budget surplus, the government has additional funds to create new infrastructure, improve the living conditions, raise salaries of government officials, and even provide support for new businesses to improve business growth. In developed economies, when the government experiences prolonged periods of excessive budget surplus, there may be outbursts from the public to reduce taxes levied on them to make sure money stays with the people who earned and not the government. Ideally, a budget surplus is preferred.

The budget balance is an ideal situation for any government where all their outlays are met through the revenues received, although any change of plans or additional programs, if needed to be taken up, would push them to a deficit. In general, all the expected expenditures would be factored in. A balanced budget would indicate every penny is accounted for and is very hard to achieve in real-world scenarios. There would always be some differences in income and outlays.

When the income does not suffice the expenditures, we have a budget deficit. It is the less preferred and more commonly occurring scenario, especially for developed economies like the United States. However, some arguments can be made where a deficit is not always bad, as the government can borrow extra funds from investors to set up the infrastructure for future returns. Temporary deficits for future surplus are acceptable. Deficits arising out of sustainable expenses, meaning expenses that will pay off in the future more than what they cost now, are seen as good signs for the economy.

On the other hand, when the deficit arises out of unsustainable expenses, which are likely to continue due to increasing debt, interest payments, inflation, etc. all are warning signs for the economy. The government plugs in the deficit by issuing securities and treasury bonds. Corporations and investors buy these bonds. A budget deficit can arise out of a multitude of reasons. When the economic growth of the native country is slower than its trading partners, it would spend more and earn less, leading to a deficit. High unemployment rates, recessions, tight lending environments, increased government spending, etc. all add to the deficit.

The United States has been facing a deficit crisis for many years in succession now. Things are only getting worse as the baby boomer generation is retiring, further increasing the weight on the social security program adding to wider deficits in the budget. An ideal government should maintain a surplus or at least a balance to be safe. Still, like any real-world scenario, a surplus or balanced budget does not ensure or indicate high economic growth. It just makes economic growth more conducive and likely for the nation or state.

The nation’s growth depends on many factors, and one amongst them is through government budget planning and allocation of funds. When it is played right, many things fall in order, and a significant boost for the economy can be induced.

Impact on Currency

The Government Budget values are useful for analysts to ascertain what proportion of funds will be allocated to each of the listed programs. The raw value of the budget in itself is not useful for traders as it is just a number and does not bear significance until there is something to compare. In general, budget or government spending as a percentage of GDP offers a more relative picture to forecast whether stimulus from the government side is relatively more or less. Through it, we can forecast the growth rate and market environment.

The government budget value alone is not enough to bring forth any significant economic conclusions or make an investment decision. Hence, it is a low-impact lagging indicator that does not bring much volatility in the currency markets.

Economic Reports

The Treasury Department and Office of Management and Budget of the United States maintain the government budget reports on their official websites. Internationally, the World Bank and International Monetary Fund maintain the budget data for most countries.

Sources of Government Budget Value

Treasury department of the United States – Budget Reports and Office of Management and Budget – USA detail the budget reports

Government budget values for most countries are available on Trading Economics.

How Government Budget Value Release Affects The Price Charts

In the US, the Department of the Treasury is responsible for the release of the Monthly Treasury Statement. This statement contains the Federal Budget Balance, which is synonymous to the Government Budget Value. It measures the difference in value between the federal government’s income and spending during the previous month. The most recent release was on August 12, 2020, at 2.00 PM ET and can be accessed from here. A more in-depth review of the Monthly Treasury Statement can be accessed at the US the Department of the Treasury here.

The screengrab below is of the monthly government budget value from On the right is a legend that indicates the level of impact the fundamental indicator has on the USD.

As can be seen, the government budget value data is expected to have a medium impact on the USD upon its release.

The image below shows the recent changes in the monthly government budget value in the US. In July 2020, the government budget value changed from a deficit of $864 billion to $63 billion, beating analysts’ expectations of a $193 billion deficit. This change is positive and, in theory, should make the USD stronger compared to other currencies.

Now, let’s see how this release made an impact on the Forex price charts.

EUR/USD: Before the Monthly Government Budget Value Release 
on August 12, 2020, Just Before 2.00 PM ET

Before the budget data release, the EUR/USD pair was trading in a subdued uptrend. As seen in the above chart, the 15-minute candles are forming closer to the 20-period Moving Average, whose steepness is decreasing.

EUR/USD: After the Monthly Government Budget Value Release 
on August 12, 2020, at 2.00 PM ET

After the data release, the pair formed a 15-minute bullish candle, indicating that the USD weakened against the EUR contrary to the expectation. However, the data release was not significant enough to cause a shift in the trading pattern. The pair traded in a neutral trend with candles forming around a flat 20-period Moving Average.

AUD/USD: Before the Monthly Government Budget Value Release 
on August 12, 2020, Just Before 2.00 PM ET

Before the data release, the AUD/USD pair traded in a steady uptrend with candles forming above a rising 20-period MA.

AUD/USD: After the Monthly Government Budget Value Release 
on August 12, 2020, at 2.00 PM ET

The pair formed a 15-minute bearish “hammer” candle after the data release. Similar to the EUR/USD, AUD/USD subsequently traded in a neutral trend with the 20-period MA flattening.

NZD/USD: Before the Monthly Government Budget Value Release 
on August 12, 2020, Just Before 2.00 PM ET

NZD/USD: After the Monthly Government Budget Value Release 
on August 12, 2020, at 2.00 PM ET

NZD/USD pair showed a similar steady uptrend as observed with the AUD/USD before the data release. The pair formed a 15-minute bearish candle. It subsequently traded in the neutral pattern observed with the other pairs.

Bottom Line

For economists, the monthly government budget value is an invaluable indicator showing the trends in government budget deficit, revenue, and expenditures. However, in the forex market, this fundamental indicator does not produce significant price action changes, as observed in the above analyses.

Forex Fundamental Analysis

What Is ‘Government Budget’ & How It Helps In Determining A Nation’s Economy?


Government Budget is one of the annual reports that moves the market volatility significantly. The Government of a country or a state is responsible for managing the economic activity of that region. Hence the Budget will primarily determine the pace of economic activity for that fiscal year. Government Budget figures are incredibly crucial for traders and investors as it can impact everything from taxes to Sovereign risks.

What is Government Budget?

Government Budget is a detailed annual plan for public spending by the Government. The Budget, in general, applies to individuals, corporations, and Governments. An individual planning his finances for the year determining what portion of his monthly/annual income he is going to allocate for his expenses would be his Budget. For corporations, annual budgets would detail what amount of revenue would be spent on different departments like R&D, marketing, infrastructure, etc.

The Government Budget is the same as the above, but the list of expenses is related to public welfare. The Government is responsible for a multitude of operations like salary payments to Government employees, financing agricultural subsidies, providing financial support to specific industries. It may also include paying for military equipment, payout pension funds to the applicable people, and other Government running operations expenses, etc.

The Government Budget is calculated on an annual basis, and for the United States, this fiscal year begins on the 1st of October to the next year’s 30th of September.

What a Government earns through taxes is called revenue, and what it spends on is categorized under Government Spending. When the spending exceeds its revenue, then we call it as a Budget Deficit or Fiscal Deficit. On the other hand, when the revenue exceeds spending, we have what is called a Budget Surplus or Fiscal Surplus. The United States has been running a budget deficit most of the time throughout history, as shown below:

Budget money spent is usually categorized into two categories:

  • Mandatory Spending: These are the spending that the Government has no choice to cut back on as these are stipulated by law, which the Government cannot fault on. For the United States, Social Security is one such program that was brought into the United States law by President Roosevelt in 1935, under the Social Security Act. Medicare and Medicaid are also typical examples of Mandatory Spending, which are fixed and must be paid out by the Government.
  • Discretionary Spending: This part can make or break an economy. It is the part of Budget that the Government decides to spend on other programs that are not mandatory but essential for growth. There is certain flexibility on how much can be spent on which part of the economy.

How can the Government Budget numbers be used for analysis?

The Government’s Fiscal Deficit is financed through borrowing money from investors in the form of bonds for which the Government promises to pay interest. Deficit each year adds to the debt. The United States and many other developed economies have spent most of their time maintaining a Budget Deficit as the spending has been failing to stimulate the economy year after year.

If the Government decides to cut back on spending to service debt and interest payments, then the economy may slow down due to a lack of funding stimulus. On the other hand, if the Government continues to spend beyond its revenues to stimulate the economy, then it will keep piling up the previous debts.

The Budget has both short-term and long-term impacts on the economy. Based on which sectors the Government has chosen to allocate its spending, investors and traders can predict economic growth and slowdowns in different sectors.

The Budget’s portion that is being spent on servicing debt and interest payments also decides whether the country is in danger of Sovereign Credit Risk. The credit rating agencies like Standard & Poor’s, Fitch Group, and Moody’s, etc. credit rate the Government. If the credit rating falls, then investors quickly lose confidence in the Government’s ability to pay back.

Hence, investors demand higher interests for the risk associated and which further cuts a bigger pie out of the Budget, leaving less room for spending. The vicious cycle of debt is tough to get out of for the Government and hence, Budget figures and strategic allocation of funds is crucial.

Impact on Currency

Currency markets quickly lose faith in the Government that is unable to resolve National Debt and large Budget Deficits, and currency immediately depreciates. Increased confidence in the Government can appreciate the currency value.

Budget strategy tells the market the Government’s ability to maintain its debt and simultaneously invest its Spending on Growth. Only servicing debt slows the economy, and only spending on Growth piles up debt, which eats up tax revenue. Both are dangerous for the Government and the economy.

Hence, the Government Budget is a significant leading economic indicator for traders and investors alike. 

Economic Reports

The Budget reports of all countries are available on their respective Federal Government’s website. On an international scale, the World Bank and International Monetary Fund maintain the budget data for most countries. For the United States, the Budget reports are available on the Treasury Department’s official website and Office of Management and Budget’s website.

Sources of Government Budget

A comprehensive summary of all Budget related statistics are available on the St. Louis FRED and some other credible websites that are given below:

Impact of the ‘Government Budget’ news release on the price charts

Till now, we have understood the importance of Government Budget in an economy and how it can be used for fundamental analysis of a currency. The Budget impacts the economy, interest rate, and stock markets. How the finance ministry spends and invests money affects the economy. The extent of the deficit influence the money supply and the interest rate in the economy. High-interest rates mean higher cost of capital for the industry, lower profits, and lower currency prices.

In this example, let’s analyze the impact of Government Budget on various currency pairs and examine the change in volatility due to the announcement of the same. For that, we have collected the data of Canada, where the below image shows the latest Budget that was fixed by the Canadian Government during the reference month. Let us find out the reaction of the market to this data.

USD/CAD | Before the announcement:

The first currency pair which we will be discussing is USD/CAD. The above image shows the exact position of the currency before the news announcement. We see that the market is in a downtrend, and recently the price has pulled back to a ‘supply’ area, and some initial reactions (red candle) can also be seen. Since the impact of the news outcome is less, aggressive traders can take a ‘short’ position with a stop loss above the ‘supply’ area.

USD/CAD | After the announcement:

After the news announcement, we see that the market moves higher, and there is a sharp surge in the price. The volatility increases to the upside the price closes as a bullish ‘news candle.’ Even though the Government Budget was higher than before, it narrowed to 3.58 billion in February from 4.31 billion in the corresponding month of the previous year. This is negative for the economy when analyzing from a yearly perspective. Thus, traders went ‘long’ in the currency and weakened the Canadian dollar.

CAD/JPY | Before the announcement:

CAD/JPY | After the announcement:

The above images represent the CAD/JPY currency pair, where we see that in the first image, the market is in moving within a ‘range,’ and currently, the price seems to have broken below the ‘support,’ showing an increase in the selling pressure. Since the Canadian dollar is on the left hand of the pair, a strong down move indicates a weakening of the currency. Since the price has broken below, we will be looking to sell the currency pair after some consolidation in the market.

After the news announcement, the price crashes below, and volatility extends on the downside. The bearishness in the price is a consequence of the weak Government Budget data that saw a decrease in the value compared to the previous year. Therefore, traders went ‘short’ in the currency pair by selling Canadian dollars. One needs to be cautious before taking a ‘short’ trade as the price is approaching a ‘demand’ area, and buyers can pop up at any moment.

GBP/CAD | Before the announcement:

GBP/CAD | After the announcement:

The above images are that of GBP/CAD currency pair, where we see that the market is in a strong downtrend before the news announcement, signifying strength in the Canadian dollar. We also observe that the price has recently bounced back from its’ lows’ and has crossed the moving average. This could be a sign of trend reversal, which we shall validate based on the outcome of the news.

After the news announcement, the price initially moves higher, but later selling pressure is seen, and the candle closes in the red. Here the volatility is witnessed on both sides of the market, and the price manages to close above the moving average line. The market appears to be volatile even after the news announcement, and we do get a sense of the direction of the market. However, aggressive can go ‘long’ in the market on the basis that the price continues to remain above the moving average, after the news release.

That’s about ‘Government Budget’ and its impact on the Forex market after its news release. If you have any questions, please let us know in the comments below. Good luck!