2012-11-29 11:10:45Roosevelt

Fiscal cliff still main concern for dollar

The Australian dollar barely reacted to today’s capital expenditure number, even falling back after the higher than predicted result.


Private capital expenditure came in at 2.8 per cent, economists had predicted 2 per cent.


The dollar was at $US1.0470 prior to the Capex’s release, upon announcement jumped to $US1.0474, but quickly faded to $US1.0463.


It’s off a little bit but to be honest, the Aussie dollar is more in line with what’s going on in US equity markets,” said Thomas Averill, currency strategist at Rochford Capital.


Advertisement “People are just absorbed by negotiations around the US fiscal cliff, I think that’s going to be the biggest determinant of the Aussie’s direction in the short-term,” he said.


BK Asset management managing director Kathy Lien said the cliff - a series of tax rises and spending cuts due to automatically begin in early 2013 if lawmakers can't agree on a debt-reduction plan - was a continuing influence on the Australian currency.


"We're in a cycle where any pessimism on progress is going to lead to weakness in the Aussie, and any optimism will lead to strength," she said.


"That's exactly what we're seeing today.


"It seems that [US President Barack] Obama is pushing for some form of compromise, and we also had comments from [House speaker John] Boehner, urging a serious discussion on the budget." Ms Lien said that comments from Mr Obama, saying he hoped a deal could be cut by Christmas, had provided optimism.


"It's putting a date in everybody's mind, and getting people excited about the possibility that we could get some reprieve from the fiscal cliff," she said.


Looking forward to next week’s RBA board meeting, the market has not priced in a rate cut which could affect the dollar once the market is alert to the decision.


If we do see an interest rate cut, I do expect the Aussie dollar to be sold off as a consequence of that,” said Mr Averill.


If the RBA leaves rate on hold, the potential for the dollar to pass $US1.05 will increase, but Mr Averill said it will be an uphill battle.


That will also depend on what’s going on in the equity market, if we get a general recovery in risk assets at the end of the year that’s when I think you’ll see the Aussie push $US1.05,” said Mr Averill