A standoff over the US debt ceiling could upset equities and the Aussie – Westpac


Republicans are still the favorites to win control of the House, which would end up with a divided Congress. Judging by the 2011 episode, a standoff over the US debt ceiling could upset equities and the Australian Dollar, Sean Callow, Senior Currency Strategist at Westpac, reports.

US Midterm Elections: Implications for AUD

“The most obvious parallel is with 2011 when President Obama faced an emboldened Republican House majority. While a default was narrowly avoided, the multi-month standoff prompted S&P to cut their US credit rating from AAA to AA+ on 5 August 2011. Bloomberg economists estimate that a similar showdown in 2023 could cut US GDP growth by almost 1%.” 

“The dramatic 2011 standoff reverberated around the world. A flight to safety sparked intervention by the Bank of Japan and Swiss National Bank to stem the surge in their currencies. The AUD was extremely high in July 2011, around 1.10, bolstered by the gap between the RBA cash rate at 4.75% versus a Fed funds rate still at its post-financial crisis low of 0.25%.” 

“But the turmoil generated by the US debt ceiling showdown spilled over to the Aussie, which tumbled 10 cents from above 1.10 in late July to around parity in mid-August. Of course, there are always many differences in the macro environment, but the Aussie remains sensitive to bouts of risk aversion from whatever source.”

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

AUD/USD pressures as Fed officials hold firm on rate policy

AUD/USD pressures as Fed officials hold firm on rate policy

The Australian Dollar is on the defensive against the US Dollar, as Friday’s Asian session commences. On Thursday, the antipodean clocked losses of 0.21% against its counterpart, driven by Fed officials emphasizing they’re in no rush to ease policy. The AUD/USD trades around 0.6419.

AUD/USD News

EUR/USD extends its downside below 1.0650 on hawkish Fed remarks

EUR/USD extends its downside below 1.0650 on hawkish Fed remarks

The EUR/USD extends its downside around 1.0640 after retreating from weekly peaks of 1.0690 on Friday during the early Asian session. The hawkish comments from Federal Reserve officials provide some support to the US Dollar.

EUR/USD News

Gold price edges higher on risk-off mood hawkish Fed signals

Gold price edges higher on risk-off mood hawkish Fed signals

Gold prices advanced late in the North American session on Thursday, underpinned by heightened geopolitical risks involving Iran and Israel. Federal Reserve officials delivered hawkish messages, triggering a jump in US Treasury yields, which boosted the Greenback.

Gold News

Runes likely to have massive support after BRC-20 and Ordinals frenzy

Runes likely to have massive support after BRC-20 and Ordinals frenzy

With all eyes peeled on the halving, Bitcoin is the center of attention in the market. The pioneer cryptocurrency has had three narratives this year already, starting with the spot BTC exchange-traded funds, the recent all-time high of $73,777, and now the halving.

Read more

Billowing clouds of apprehension

Billowing clouds of apprehension

Thursday marked the fifth consecutive session of decline for US stocks as optimism regarding multiple interest rate cuts by the Federal Reserve waned. The downturn in sentiment can be attributed to robust economic data releases, prompting traders to adjust their expectations for multiple rate cuts this year.

Read more

Forex MAJORS

Cryptocurrencies

Signatures