Fiscal Cliff spectre remains overriding theme

15.25 AEDT, Wednesday 14 November 2012

Fiscal Cliff spectre remains overriding theme

By Tim Waterer (Senior Trader, CMC Markets)

The Australian Dollar found support today via the 19 month high reading on Consumer sentiment. The AUDUSD made its way to 1.0450, with calmer conditions across Asian markets today supporting the risk-sensitive Aussie. Today’s Consumer sentiment reading was nearly the polar opposite to yesterday’s Business Confidence indicator, and overall it is still tough to gauge where we at in terms of another potential RBA cut over coming months. I suspect that the international picture will be the deciding factor here.

The AUD continues to perform well in the aftermath of last week’s non-action by the RBA. Amid all the avalanche of equity selling since the US election, the AUD has held up quite well even though the US Dollar remains popular buy against other currencies with so much risk aversion circulating in the market. The Euro hovering at two month lows speaks to this.

Perhaps exhausted after all the selling done on Tuesday, the Australian sharemarket had a more civilised performance today however caution was again the prevailing theme in the lead up to the US Fiscal Cliff deadline. Banking stocks were able to bounce back best after the heavy selling yesterday, with the financial sector helping to prop up the broader index amid softer showings elsewhere, with the energy sector again struggling.

But overall, investors still appear unwilling to venture into risk assets. The spectre of the Fiscal Cliff is serving to downplay financial market performance until such time as this colossal hurdle is overcome by Washington. In the meantime, downward shifts in the market will likely by sharper than any shifts to the upside whilst ever the chance of a double dip recession remains even a faint chance.

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