Forex Flash: AUD/USD, NZD/USD downside limited by US – Westpac

FXstreet.com (Barcelona) - The January 1 House vote to pass the Senate bill which averted most of the tax hikes in the "fiscal cliff" removes much of the danger to US growth from the tax side. According to Westpac Markets Strategist Sean Callow, "Price action in global equity markets including Australia's key Asian trading partners indicates optimism over the US outlook that should limit downside on AUD/ USD and NZDUSD multi-week."

However, US Congress is not finished rocking financial markets. "Ultimately, the February Congress needs to deal with the across the board spending cuts postponed in the January 1 deal and probably more importantly for markets, needs to raise the US debt ceiling to avoid a historic debt default." Callow adds.

Our base case (probability above 85%) is that the debt limit is raised just in time (most likely end-February), after an agreement on spending cuts.