WSJ:Australian Dollar up Late as Fiscal Cliff Fears Ease
SYDNEY--The Australian dollar was higher late Tuesday amid rising hopes U.S. lawmakers will soon broker a deal over the so-called fiscal cliff, though the upbeat mood was somewhat offset by Moody's MCO +2.69% downgrade of France's credit rating to Aa1 from Aaa.
The Aussie dollar was trading at US$1.0408 at 0650 GMT, after hitting an intraday high of US$1.0424. That compared with US$1.0364 late Monday.
"After having been brittle this month on U.S. fiscal cliff worries, the market did an aboutface overnight, essentially building in an expectation that a deal will be done and maybe not even at the eleventh hour," said David DeGaris, a senior economist at National Australia Bank NAB.AU +1.41% .
U.S. President Barack Obama, in Bangkok for a three-nation trip Sunday, had said he was "confident" the fiscal situation could be dealt with by lawmakers.
Closer to home, the Reserve Bank of Australia left the door open to a further rate cut next month by saying it is considering the idea.
"Further easing may be appropriate in the period ahead," the RBA said in the minutes of its Nov 6 policy meeting.
Financial markets have currently priced in a 60% chance that a cut will be announced in December, with that probability rising to 100% by December.
"Given the RBA chose to insert such an explicitly dovish comment on further easing, this suggests a sufficiently clear signal to now expect a 25 basis point rate cut at the RBA's next meeting in December," said Scott Haslem, chief economist at UBS, UBSN.VX -1.10% Australia.
Overnight, the International Monetary Fund put the Australian dollar back in the spotlight by saying it was considering including the Aussie dollar in its official currency reserves report alongside major safe-haven currencies like the U.S. dollar and Swiss franc, potentially boosting its appeal among international investors.
Market strategists say the announcement simply confirms what markets already know about the growing use of the Australian dollar as a reserve currency.
"The way we see it--the clarity is great, it confirms what we already know but not much else," said Emma Lawson, currency strategist at National Australia Bank.
Looking ahead, a speech at 0815 GMT by RBA Gov. Glenn Stevens later today will be closely watched.
Mr. Stevens is expected to be asked about the RBA's recent moves to build foreign currency reserves as a passive means of applying subtle pressure to the Australian dollar, traders say, and any clarification could trigger weakness in the Australian dollar.
