AUD/USD: Market Optimism on Fiscal Deal Weakens Greenback

There is market optimism in the global financial markets, and the safe haven US dollar is expected to fall against its Canadian currency counterpart. The bipartisan US Congress finally agreed to and voted for a budget deal to avert the fiscal cliff drama. This was a win for President Barack Obama and the Democrats, though Republicans vowed to fight him in coming weeks for spending cuts in exchange for raising the debt ceiling.

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.”

“The compromise reached on the fiscal cliff means that the U.S. economic recovery can continue unimpeded,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London, who predicts oil will remain near current levels this month. “Unemployment will continue to shrink in the U.S. and the housing market to recover.”

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.

Further supporting the Loonie’s appreciation is how oil prices reacted to the fiscal deal. Oil rose to the highest level in more than 10 weeks in New York after the US came to an agreement to avert the automatic tax increases and spending cuts that threatened growth in the Maple Leaf’s trading partner. Futures increased as much as 1.1 percent after the legislation to avoid the fiscal cliff was passed.

Now that the fiscal cliff has been averted, a sell bias is advised for the USDCAD. Be on the watch for probable technical price corrections though, as the currency pair already treads the oversold region.


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