US debt resolution will bolster dollar
Late in trading the dollar was at US94.76¢, up from US94.08¢ on Thursday. Demand for the local dollar rose in morning trade after US President Barack Obama and Republican leaders began discussions on extending the borrowing limit for six weeks to avoid a default.
"If there is a feeling that financial Armageddon has been averted, even if it's for a few months, the markets will take it," Easy Forex senior dealer Francisco Solar said.
"And because the Aussie has such a high interest yield, there is some benefit to be had in holding Australian dollars."
Republican House Speaker John Boehner's offer to extend the borrowing authority in exchange for budget concessions also boosted the Australian dollar against the Japanese yen, Mr Solar said.
A weekend debt ceiling breakthrough could help push the Australian dollar even higher, he said.
"If there was something to be announced ... you could see the Aussie push above 95, towards 96," Mr Solar said.
Meanwhile, bond futures contract prices were firmer after the moves towards a resolution on the US debt ceiling.
Demand for fixed income assets rose during the morning on Friday after investors believed the White House was closer to reaching a deal to avoid a debt default. But 10-year prices retreated from their highs when it appeared political leaders had reached no agreement.
"The very early headlines were that no agreement had been reached and we were quite firm on the back of that and the market seemed to get caught long," RBC Capital Markets fixed income strategist Michael Turner said. "We've come back a tiny bit but in general it's been a fairly weak session after a fairly strong open."
The December 10-year bond futures contract was trading at 95.910 (implying a yield of 4.090 per cent), up from 95.875 (4.125 per cent), while the December three-year contract was at 96.860 (3.140 per cent), up from 96.850 (3.150 per cent).
Frequently Asked Questions about this Article…
The US debt ceiling extension has positively impacted the Australian dollar, as it was firmer on Friday following the offer to temporarily extend the American debt ceiling. This move increased demand for the local dollar, pushing it up against the US dollar and the Japanese yen.
The Australian dollar is seen as a good investment during US debt negotiations because it offers a high interest yield. This makes holding Australian dollars beneficial, especially when there is uncertainty in the US financial markets.
A breakthrough in the US debt ceiling negotiations could push the Australian dollar even higher. If an announcement is made, the Aussie dollar could rise above 95 cents, potentially reaching towards 96 cents.
Bond futures contract prices were firmer following moves towards a resolution on the US debt ceiling. However, 10-year bond prices retreated from their highs when it appeared that no agreement had been reached.
The market initially reacted firmly to early headlines suggesting no agreement had been reached on the US debt ceiling. This led to a fairly weak session after a strong open, as investors adjusted their positions.
The December 10-year bond futures contract was trading at 95.910, implying a yield of 4.090%, up from 95.875 (4.125%). The December three-year contract was at 96.860, implying a yield of 3.140%, up from 96.850 (3.150%).
Demand for fixed income assets rose as investors believed the White House was closer to reaching a deal to avoid a debt default. This optimism led to increased interest in these assets during the morning trading session.
Political negotiations around the US debt ceiling played a significant role in influencing both currency and bond markets. The discussions and potential resolutions impacted investor sentiment, leading to fluctuations in the Australian dollar and bond futures prices.
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