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Australian Dollar Remains Lower on Fiscal Cliff Concerns

Australia’s dollar remained lower as an impasse on talks to avert the so-called fiscal cliff in the U.S. sapped demand for higher-yielding assets.

The Australian and New Zealand dollars held losses against most major peers from last week after House Speaker John Boehner failed to garner support for a plan that would have extended tax cuts on incomes below $1 million. The so-called Aussie gained against the yen after Japan’s incoming prime minister Shinzo Abe reiterated calls for the central bank to set an inflation target of 2 percent.

“The only real guidance that we have is this sort of uncertainty associated with the fiscal cliff, and so that seems to be taking control of the Aussie dollar,” said Gavin Stacey, chief interest-rate strategist in Sydney at Barclays Plc.

The Australian dollar fetched $1.0408 as of 4:54 p.m. in Sydney from $1.0396 at the close on Dec. 21, when it dropped 0.8 percent. The Aussie rose 0.3 percent to 87.79 yen. New Zealand’s dollar, known as the kiwi, weakened 0.1 percent to 82.23 U.S. cents and was little changed at 69.36 yen.

Australia’s 10-year government bond yield added two basis points, or 0.02 percentage point, to 3.35 percent.

In Washington, political leaders are debating how to avoid the fiscal cliff: more than $600 billion in automatic tax increases and spending cuts that will take effect in January unless Congress acts. Failing to gather enough support to pass the measure, House Republican leaders canceled a vote on Boehner’s “Plan B” that would have allowed higher tax rates for annual income above $1 million last week.


“We do still have the fiscal cliff issues in the U.S. hanging over the market,” Todd Elmer, head of Group of 10 foreign exchange strategy for Asia excluding Japan at Citigroup Inc. in Singapore, said in an interview with Bloomberg Television. “However, I think if you do see lower levels in the Aussie it’s a great buying opportunity.”

Australia’s budget should return to surplus in 2014, the country’s trade minister said yesterday. The original target of a surplus in the fiscal year ending June 2013 could be achieved if positive signs around household spending continue, Craig Emerson said in an interview on Sky News television.

In Japan, Abe said on Fuji Television yesterday that he will consider revising the law governing the central bank if it fails to increase its inflation target to 2 percent at its January meeting. Abe has called for unlimited easing from the Bank of Japan to stimulate growth, and he is poised to become prime minister after elections on Dec. 16 returned his Liberal Democratic Party to power.

Investor funds may flow from Japan to Australia’s bond market as “putting some money to work here is probably not a bad idea given these potential depreciations in the yen,” said Barclay’s Stacey.

Credit-default swaps protecting Australia’s government debt for five years have risen seven basis points this month to 45.37 basis points, according to data provider CMA. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

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