GBP AUD And GBP NZD Exchange Rates Could Plummet If US ?Fiscal Cliff? Issue Is Resolved

Published: Monday, 10 December 2012 09:00 BST - Written by David Woodsmith

STORY LINK GBP AUD And GBP NZD Exchange Rates Could Plummet If US ?Fiscal Cliff? Issue Is Resolved

The weekend currency market shut-down brought the release of further encouraging data from China. The numbers revealed that Industrial Production in Asia’s premier economy expanded by an annualised 10.1% against expectations of a 9.8% rise during last month. Figures released at the same time revealed that Chinese Retail Sales had grown by an annualised 14.9% in November. Again, this was well ahead of analysts’ predictions.

The positive releases from China were slightly tempered by domestic CPI inflation, also released yesterday, which showed that prices rose at an increased annualised pace of 2.0% during last month – up from October’s corresponding1.7% print. Chinese policymakers have long held the view that persistently high levels of inflation pose a threat to their nation’s ‘economic miracle’ of recent years.

The go-ahead Chinese Industrial Production and Retail Sales numbers have raised the likelihood of this week’s session being a positive one for risk sentiment, particularly in light of last Friday afternoon’s US Non-Farm Payrolls data, which thrashed expectations. However, one overbearing unresolved matter continues to hand like a pall over the markets – the US’s so-far fruitless ‘Fiscal Cliff’ discussions. Last Wednesday’s comments from US Treasury Secretary Timothy Geithner, which confirmed that he was prepared to allow the American economy to tumble over the impending fiscal precipice which it faces, have served to ‘up the ante’ on the issue. Friday’s description by Republican House Speaker John Boehner of how President Barack Obama was ‘slow walking’ towards the edge served as a reminder that the US’s two major political parties remain a long way from an agreement on how best to avoid a trip ‘over the edge’.

If this week’s session provides evidence that warring Republican and Democrat factions are moving towards an accord on the ‘Fiscal Cliff’ issue in the States, then appetite for risk is likely to flood back into the market. This would trigger a sustained bout of support for the high-yielding Australian and New Zealand Dollars as well as the South African Rand. Investors needing to buy these currencies in the short-term should therefore remain cautious.

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