The US dollar is looked forward to make gains over its Australian counterpart as the fiscal cliff negotiations continue to drag, but mostly on growth concerns in the land Down Under.
In another episode of the fiscal cliff drama, House Speaker John Boehner aims to use a vote on his alternate budget proposal to highlight Republican opposition to tax increases sought by President Barack Obama. All boiling down to the dynamics of the negotiations, market participants are set for another grueling series of pressure tactics.
As reported on Bloomberg by Kathleen Hunter & Roxana Tiron, the speaker’s proposal would permanently extend current tax rates on incomes below $1 Million a year and prevent the expansion of the alternative minimum tax. Based on studies of previous proposals, the bill would raise between $300 Billion and $400 Billion over the next decade, though an official estimate was not available as of last night. The plan would also set tax rates for capital gains and dividends at 20 percent on income higher than $1 Million. A tax already set to take effect in 2013 would push the total top rate on investments to 23.8 percent. The bill would continue current estate-tax rules that set the per-person exemption at $5.12 Million, indexed for inflation, with a top rate of 35 percent.
The house speaker’s ‘Plan B’ highlights Republican opposition to tax increases sought by the president. Boehner’s push for a House vote on his proposal is seen as a pressure tactic to force Obama to accept deeper spending cuts and a higher threshold for rate increases by showing how hard it will be to win Republican support for any tax increase. Senate Majority Leader Harry Reid and other Senate Democrats were among those rejecting Boehner’s plan, adding that the measure “can’t pass the Senate.”
With the fiscal cliff deadline looming nearer, and as Republicans continue to oppose tax hikes for the wealthy, investments could filter into the safety of the Greenback until stronger signs of progress come out.
Meanwhile, the Asian commodity dollar is on a decline for a third day on concern that the South Pacific nation’s economy is slowing and could be in store for more interest-rate cuts by the Reserve Bank of Australia. An interview published in the Australian Financial Review has RBA Governor Glenn Stevens saying that a seamless “handover” from mining to other drivers of economic growth could not be absolutely guaranteed.
Taking these fundamental news into account, a sell bias can be considered for the AUDUSD today. Technical price corrections are still likely, especially after Standard & Poor’s raised the credit rating of Greece from selective default to B- with a stable outlook, which could give a boost to risk demand.
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