THE Australian Dollar, like most emerging currencies, has been affected by the negotiations in the US to avoid the so-called Fiscal Cliff.
US policy makers were hoping to have a solid plan in place by the end of 2012 that would avoid the automatic tax hikes and government spending cuts that are associated with the Fiscal Cliff. Repeated conflict in discussions prevented a solid plan from materializing, resulting in a decline in the Aussie to 1.555 against the British Pound by Christmas.
Gavin Stacey, of Barclays in Sydney said, “The only real guidance that we have is this sort of uncertainty associated with the Fiscal Cliff, and so that seems to be taking control of the Aussie Dollar,” reported Bloomberg.
Gains were found, however, by the Aussie against the Japanese Yen as it touched a 20-month high against the currency after data released showed a further drop in the nations’ too-low price index. This placed further pressure on Japan to increase their inflation target in a bid to stimulate growth.
The US fiscal bill, which averts the cliff, finally passed by Congress in the early hours of 02 January kicked the Pound to a 16-month high against the US Dollar, largely offsetting any gains felt by the Aussie after the policy decision.
For the week ahead, the spotlight will remain on the US as markets react to the US’s new fiscal arrangement.
Composed by Jesse Crooks of 1st Contact Money Transfers
Exchange rates as of 09:55 GMT, 02 January 2013
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