Bell FX Currency Outlook: The Australian Dollar has opened a full cent lower this morning from Friday's levels as the hopes of reaching a compromise on the fiscal cliff issue in the US before the end of the year were dashed.

Australia: There was a bit of optimism that the two major parties in the US could reach some compromise before the end of the year but with the Republicans refusing to budge from their stance that they would be no tax increases on incomes of individuals up to USD1m annually, the US Congress has adjourned until 2013.

There were reports that President Obama would have entertained the idea that tax increases would apply to those earning over US$400k which was higher than his original requirement of US$200k for individuals and US$250k for couples.

With no deal being reached equity markets moved lower and took the AUD with it from its higher levels on Friday night. The Dow index finished off 120 points or 0.90% down from the previous day although the index had been lower as banking stocks generally moved the index downward.

All other major indices in Europe and the US were lower as well. Most analysts believe there will be a deal done in the first few weeks of 2013 but the Republican attitude appears to be more intractable than some thought leaving the moderate Republican House of Representative leader John Boehner in a difficult position.

We don't expect significant movement in the AUD over the holiday period although further weakness may appear since volumes tend to be lighter this time of year.

There are no significant announcements due until the second week of January.

Majors: The EUR retreated from its recent highs versus the USD and all commodities fell modestly after the lack of an outcome in the USA.

Gold has retreated to a 4 month low touching US$1,635 an ounce on Thursday. Although all equity markets were soft on Friday, the year of 2012 has seen the German DAX rise nearly 30% and the Euro STOXX 50 index 14%.

With weakness in the AUD, the cross rates have deteriorated although we would expect to see not too much further move downward in the next few days.
Economic Calendar
24 DEC JP Bank holiday
EU German bank Holiday