With the tides eventually turning in favor of President Barack Obama and the Democrats, the bipartisan US Congress finally agreed to and voted for a budget deal to avert the fiscal cliff drama. Risk sentiment is bolstered, and the safety bet US dollar is expected to falter opposite its Australian commodity dollar counterpart.
A report from Reuters has it that, “the United States averted economic calamity on Tuesday when lawmakers approved a deal preventing huge tax hikes and spending cuts that would have pushed the world’s largest economy off the “fiscal cliff” into recession. By a vote of 257 to 167, the Republican-controlled House of Representatives approved a bill that fulfills President Barack Obama’s re-election promise to raise taxes on top earners. The Senate passed the measure earlier in a rare New Year’s Day session and Obama said he will sign it into law shortly.”
“This is a typical risk-on market, where the yen and dollar are sold,” said Satoshi Okagawa, a senior global markets analyst in Singapore at Sumitomo Mitsui Banking Corp. “The cliff is behind us for now.”
Financial markets are relieved that the US Congress finally came to a compromise, ending months of bickering by both sides and avoiding a fiscal disaster for the world’s largest economy. Asian markets rose to a five-month high in earlier trading, while European shares made solid gains in morning trading. The FTSEurofirst 300 Index traded at highs not seen since May 2011 after a rare New Year’s Day session in which the Republican-controlled House of Representatives staved off automatic spending cuts and tax increases by approving a Senate-backed bill that raises taxes on families earning more than $450,000 per year.
Likely adding to the positive mood in the demand for the riskier Aussie is the economic release in the first of the year showing that a gauge of China’s manufacturing showed a third month of expansion. This adds evidence that the recovery in the world’s second-biggest economy will extend into the new year, positively affecting the currency of its trade partner from the Land Down Under.
A buy bias is recommended for the AUDUSD in light of the market optimism. Still, be on the watch for likely technical price corrections as the currency pair is already trading at the overbought territory.
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