US fiscal cliff fears halt dollar's run
The dollar was trading at US105.44¢, down from US105.52¢ at Thursday's close.
A Commonwealth Bank currency strategist, Joseph Capurso, said the dollar had started the day weak, on concerns about the fiscal cliff, but had risen slightly on Chinese manufacturing data.
"Chinese flash PMI (purchasing managers' index) was slightly higher than expected, and regional sharemarkets are quite strong, so that usually gives the Aussie a bit of a bump up," he said.
"However, liquidity is quite thin at this time of year, so it's hard to read much into it."
Mr Capurso said the US fiscal cliff would dominate the market next week, and heading into the year's end. "The market's been very patient with the politicians, but that patience might not last much longer," he said.
US political leaders continue to debate how to resolve the fiscal cliff - a series of tax rises and spending cuts that will come in at the beginning of next year.
Also notable on Friday was the Australian dollar/Japanese yen cross - with the dollar trading at ¥88.47, its highest since March.
Mr Capurso said weakness in the yen could be due to concerns about Japan's general election on December 16, and expectations of economic stimulus by the central bank.
Meanwhile, bond futures prices were lower on global currency moves and low liquidity.
The December 10-year bond futures contract was at 96.690 (implying a yield of 3.310 per cent), down from 96.770 (3.230 per cent) on Thursday. The three-year contract was trading at 97.185 (2.815 per cent), down from 97.260 (2.740 per cent).
Deutsche Bank bond trader Andrew Bryan said the fall was driven by a lack of liquidity in the market, rather than local or international economic concerns.
"The trend at the moment is mainly driven by currency moves, particularly the Aussie-yen cross," he said.
"There's not much liquidity in the market at the moment, so any flows are having an outsize effect."
Frequently Asked Questions about this Article…
The Australian dollar slipped on investor worries about the looming US fiscal cliff, trading at about US105.44¢ versus US105.52¢ at Thursday's close. Early weakness was offset slightly after stronger-than-expected Chinese flash PMI and firm regional sharemarkets, but overall the move was small.
The article describes the US fiscal cliff as a set of tax rises and spending cuts scheduled to take effect at the start of next year. Investors worry those measures could damage the US economy, so negotiations around the fiscal cliff can drive volatility in currencies and global markets.
Commonwealth Bank currency strategist Joseph Capurso said a slightly stronger-than-expected Chinese flash PMI and robust regional sharemarkets gave the Aussie a small bump. He cautioned, however, that thin year-end liquidity makes it hard to read too much into the move.
The Australian dollar/Japanese yen cross traded around ¥88.47, its highest since March. Capurso suggested yen weakness may reflect concern about Japan’s general election on December 16 and market expectations of economic stimulus from Japan’s central bank.
Bond futures prices fell on global currency moves and low liquidity. The December 10‑year contract was at 96.690 (implying a 3.310% yield), down from 96.770 (3.230%), and the three‑year contract was 97.185 (2.815%), down from 97.260 (2.740%). Lower futures prices in this context meant slightly higher implied yields.
Deutsche Bank bond trader Andrew Bryan said the recent falls were driven more by a lack of liquidity than by local or international economic concerns. When liquidity is thin, relatively small flows can have outsized effects on currency pairs and bond futures, increasing short-term volatility.
The article quoted Joseph Capurso, a Commonwealth Bank currency strategist, who discussed the impact of the US fiscal cliff and Chinese PMI on the Aussie, and Andrew Bryan, a Deutsche Bank bond trader, who pointed to low liquidity and currency moves—especially the Aussie‑yen cross—as drivers of recent bond and currency moves.
According to the article, investors should watch US fiscal cliff negotiations (which are likely to dominate markets), upcoming Chinese data like the flash PMI, Japan’s general election and any talk of central‑bank stimulus, and year‑end liquidity conditions that can amplify market moves.
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