The two words every trader, analyst and commentator will no doubt be glad to see the back-end of this week is debt ceiling' and thankfully it appears US lawmakers have today bridged the impasse that's been hanging over the market for too long. In a television address, Obama conceded it that while it may not be the preferred deal; but said it represents a "serious down payment on deficit reduction". The point of contention is no doubt the exclusion on tax hikes which Democrats have been pushing for, however the deal will see Obama head into the 2012 presidential election 'debt ceiling free' - which was one of the key stumbling blocks earlier in negotiations. The deal is expected to see the deficit cut by $US2.5 Trillion over the next decade, with the debt limit extended by $US2.4 to 16.7 Trillion. Nevertheless, it's too early to bring out the party balloons given the deal is pending a congress vote tonight, and the ratings agencies have yet to make a comment on how this may affect the US AAA rating.
The local session has seen a relief rally across currencies and equities markets with the US dollar bouncing off all-time lows against the Swiss franc and 4 - ½ month lows against the Yen. The USD hasn't has the same luck against commodity bloc currencies with the Aussie, kiwi and CAD also primary beneficiaries of the relief rally.
It's been a strong start to the week for the Aussie dollar with price action recording solid gains against major rivals. The AUDJPY pair has been the standout in domestic trade rising to highs of 86.18 earlier this morning. At the time of writing the local unit has stalled around $US1.1050 - near day highs of $US1.1060. From here the key directive for the A$ will continue to be conjecture surrounding the tonight's congress vote and importantly any guidance from ratings agencies. While we may consider today's A$ strength as a sneak preview into what we may expect this evening - the actual backwash may prove to be a tad more complicated given the likelihood of short term bounce from the greenback when all is said and done.
Nevertheless, the Aussie is at a prime vantage point to forge new post-float highs this week with resistance of $US1.1080 likely to represent a reasonably weak barrier should we see a sustained period of risk appetite.
Tomorrow will see the focus to the Reserve Bank interest rates decision which we expect will see the RBA keep benchmark interest rates at 4.75 percent. While last week's CPI may have screamed a near term interest rate hike is on the cards, it may not yet be enough to force the hand of the RBA - however we do expect the ensuing statement to take a slightly more hawkish tone, which by default implies further strength from the local unit.