With fiscal cliff talks set to resume today in Washington, some risk sentiment is placing the safety bet US dollar to the sidelines. Despite the thin volume of the exchanges, the mild risk confidence in the markets is seen to push the Australian dollar over the US currency. US lawmakers will continue to attempt to strike a deal before the government hits the debt ceiling on New Year’s Eve. Market participants are expectant that a deal, however small, will be agreed to by both sides to avert a fiscal disaster in the world’s largest economy.
Bloomberg reports that US Treasury Secretary Timothy F. Geithner notified Congress that he will take “extraordinary measures” to postpone a US default into early 2013, while the White House and Congress work out a deficit-reduction deal. In a letter to congressional leaders, Geithner reminded that the government will hit its statutory debt ceiling on December 31. To avert such a default, the Treasury will take action to create about $200 Billion in headroom under the debt limit, which would normally last about two months. Until a higher debt ceiling is approved as part of a deficit reduction deal or separately, Geithner said the Treasury actions would include halting sales of certain securities and stopping new debt issues.
“However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures,” Geithner said. The aforementioned letter adds urgency to talks between Obama and congressional Republicans on a deficit-reduction plan. Obama has asked that raising the debt ceiling be part of that plan.
Despite the medium-term bearish run by the Aussie-Greenback, the currency pair found support at the 1.0353 price mark and is now attempting a bullish correction, if not an eventual reversal. Uncertainty and concerns about the fiscal cliff still weigh on risk markets such as the Australian commodity dollar, but developments on the budget negotiations are seen to give a nudge to risk confidence.
As fiscal cliff talks resume today, a buy bias is suggested for the AUDUSD today. Technical price corrections are still likely, however.
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