Currently the topic of conversation for many involved in the currency world relates to the on going ‘Fiscal Cliff’ in the US. At the moment its a will they wont they scenario with regards to meeting the demands of the debt ceiling and the potential for a hike in taxes if they don’t. We followed a very similar scenario a few years back with politicians striking a deal at the last minute to breed a degree of confidence back into the market and ease the pressure on the US economy. For me this is exactly what is likely to happen again, with the the story being over hyped by the media to fill up column inches and airtime for politicians to bolster their own positions. Yes the severity of the cliff would be huge but this is the exact problem, surely it is too big a problem for an agreement not to be made? I would expect a deal to be agreed in the coming weeks that is likely to breed confidence back into the market and this may cause a drive towards riskier assets such as the Australian Dollar. Of course the recent interest rate cut by the RBA may have decreased the attractiveness of the AUD slightly (although still a far better return than the UK) and with the central bank openly attempting to devalue the AUD to make it more competitive in the export market it is a difficult currency to predict at the moment. Certainly I feel an increase in confidence should lead to an increase in demand for the AUD, however longer term influence form the RBA and the falling mining sector in Australia will inevitably keep pressure on the dollar and I would expect a move towards 1.60 in the New Year.
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