Australian Dollar Gains on Fiscal Cliff Optimism

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Peter Lavelle, 29.11.2012

Latest Exchange Rate Changes

  • GBPAUD: 1.5341 to 1.5312 (-0.189%)
  • USDAUD: 0.9626 to 0.9556 (-0.727%)
  • EURUSD: 1.2399 to 1.2375 (-0.194%)

Fiscal Cliff Optimism Lifts the Australian Dollar

The Australian dollar gained three-quarters of a cent against the US dollar this week, reflecting market optimism that a solution to the US fiscal cliff can be reached before Christmas. Speaking this week, US House Speaker John Boehner said he believes a deal can be reached "sooner rather than later."

This benefited the Australian dollar because the US is the biggest economy in the world, and so the prospect of the $600bn cliff being avoided aids not just the US economy, but that of other countries like Australia too.

But a Pessimistic Remark Could Quickly See the Aussie Fall

However, it's worth noting that the market is extremely sensitive where talk of the fiscal cliff is concerned. Hence, while an encouraging comment from President Obama or House Speaker John Boehner can lift the Aussie dollar, a less upbeat remark could see it fall just as quickly.

If you wish to take advantage of these Australian dollar gains, it could therefore be worth locking in your exchange rate with a forward contract ahead of time. To find out how, just leave a comment in the form below.

RBA Rate Cut Sees Aussie Still Against Pound and Euro

Elsewhere, as you can see in the table above, the Australian dollar has been virtually still against the pound and euro, moving less than a fifth of a cent against both currencies for the second week on the trot. This reflects the fact, fiscal cliff aside, the market prefers to be cautious ahead of next week's interest rate decision by the Reserve Bank of Australia.

Following October's surprise cut of -0.25%, investors are extremely uncertain if another cut will follow, with Hans Kunnen, chief economist at St. George Bank Ltd. in Sydney, noting, "It's a 50-50 call."

Lower Australian Interest Rates Could Be to Your Benefit

There's talk of an interest rate cut because, with Australia mining boom set to peak in mid-2013, the Reserve Bank is eager to rebalance Australia's economy away from resources. An interest cut would do that, by making borrowing cheaper for households and businesses, therefore leading to an increase in mortgages as well as commercial investment.

Furthermore, if you intend to relocate to Australia, an interest cut would be to your benefit, as it reduces the return investors can expect from Australian investments, hence making the Aussie dollar less valuable.

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