Pound Australian Dollar And Pound New Zealand Dollar Rates Could Tumble If US ?Fiscal Cliff? Is Avoided

Published: Monday, 26 November 2012 16:00 BST - Written by Ben Hughes

STORY LINK Pound Australian Dollar And Pound New Zealand Dollar Rates Could Tumble If US ?Fiscal Cliff? Is Avoided

European and UK stock indices have struggled to break into positive territory during today’s session. The move follows last week’s significant gains for global shares, so some of the movement would appear to be attributable to technical factors as the markets adjust down towards fair value once more. Today’s limited flight to quality has seen the safe haven US Dollar recover against the Pound, taking the GBP USD exchange rate back down towards the 1.6000 level this afternoon.

However, it would appear unlikely that the shift out of risk is explicable entirely in terms of speculative movement. Several key global risk events remain unresolved – although US President Obama’s recent comments have hinted that a resolution to his nation’s impending fiscal cliff dilemma is on the cards, institutional investors remain wary of the decimating effects which a hike in US taxes and a slashing in government spending which a visit over the precipice would trigger.

Meanwhile, in the eurozone, the region’s finance ministers once again convened in Brussels earlier today in an effort to reach an accord on whether to grant Greece its next tranche of bailout funding. Similarly, there is only a slim chance that the eurogroup will fail to rubber stamp the emergency payment, but lingering fears of the monumental effect which such an outcome would wreak on the markets are blunting institutional investors’ appetite for risk.

The current set-up in the markets means that several currency pairs are coiled like a spring and ready to jump into action at a moment’s notice. If the ‘Fiscal Cliff’ / ‘Greek Debt’ situations resolve themselves in the near-term, expect the risk-sensitive Australian and New Zealand Dollars to enjoy a sharp bout of support. This could see the GBP AUD and GBP NZD exchange rates tumble towards 1.5000 and 1.9000 respectively. Meanwhile, such a set of events would surely see the US Dollar leak support, taking the GBP USD exchange rate back up towards September’s 15-month high of 1.6310.

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