Australian Dollar Slumps as Talks About Fiscal Cliff Unsuccessful

The Australian dollar dropped today as a deadlock in the negotiations about preventing the fiscal cliff in the United States resulted in risk aversion among Forex traders.
House Speaker John Boehner had to scrap his “plan B” after his own party rejected the proposal in a vote. Politicians have not much time left before the year-end to find a consensus about avoiding the so-called fiscal cliff. Unless some form of an agreement could be found, the US economy will face $600 billion of automatic tax increases and spending reductions that may lead to a recession.
Markets demonstrated a negative reaction to the news. The Standard & Poor’s 500 Index dropped as much as 1.1 percent, while the Dow Jones Industrial Average declined 0.5 percent.
AUD/USD dropped from 1.0479 to close at 1.0402 and AUD/JPY sank from 88.39 to 87.60. EUR/AUD advanced from 1.2632 to the closing price of 1.2668 and its daily high of 1.2696 was highest since October 17.

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