Forex - AUD/USD weekly outlook: December 31 - January 4

Investing.com - The Australian dollar ended Friday’s session close to a five-week low against its U.S. counterpart, as investors became increasingly worried that U.S. lawmakers will not reach a deal to tackle the approaching fiscal cliff crisis ahead of the January 1 deadline.

AUD/USD hit 1.0343 on Wednesday, the pair’s lowest since November 21; the pair subsequently consolidated at 1.0369 by close of trade, down 0.28% for the week.

The pair is likely to find support at 1.0343, Wednesday’s low and a five-week low and resistance at 1.0395, Friday’s high.

Market players remained focused on developments surrounding the fiscal cliff in the U.S., approximately USD600 billion in automatic tax hikes and spending cuts due to come into effect on January 1 unless Democrats and Republicans agree how to cut the deficit.

U.S. President Barack Obama met with congressional leaders at the White House Friday afternoon, but both sides failed to reach an agreement ahead of the looming year-end deadline.

The gathering included House Speaker John Boehner and Senate Minority Leader Mitch McConnell, both Republicans, as well as Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats.

The House of Representatives is due to return to Washington on Sunday. The Senate will be in Sunday as well to try to reach a last-ditch agreement.

Without a deal, the U.S. could fall back into recession and drag much of the world down with it.

Adding to the cautious trade environment, Italy saw borrowing costs edge higher at an auction of five- and- ten-year government bonds, amid uncertainty ahead of national elections in February.

Rome sold EUR3 billion of 10-year bonds at an average yield of 4.48%, up from 4.45% last month. The country also auctioned EUR2.87 billion of five-year debt at a yield of 3.26%, compared to 3.23% a month earlier.

Meanwhile, revised data showed that France’s economy grew by a meager 0.1% in the third quarter, down from an initial estimate for growth of 0.2%. The euro zone’s second largest economy shrank 0.1% in the second quarter, unchanged from the previous estimate.

The news prompted investors to shun riskier assets, like stocks and high yielding currencies, and move in to safe-haven assets, such as the U.S. dollar and Treasurys.

In the week ahead trading volumes are expected to remain light, with many investors away for the New Year’s holiday.

Meanwhile, investors will be looking ahead to Friday’s highly anticipated data on U.S. nonfarm payrolls, as investors attempt to gauge the strength of the country’s economic recovery.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, December 31

Markets in Australia will remain closed for New Year’s Eve.   

Tuesday, January 1

Markets in the U.S. and Australia  will remain shut in observance of New Year’s Day.

Wednesday, January 2

The Institute of Supply Management is to produce a report on manufacturing growth in the U.S., a leading indicator of economic health.

Thursday, January 3

The U.S. is to release a report on ADP nonfarm payrolls, as well as its weekly government report on initial jobless claims. In addition, the Federal Reserve is to publish the minutes of its most recent policy-setting meeting.

Friday, January 4

Australia is to release data on service sector growth.

Meanwhile, the U.S. is to round up the week with official data on nonfarm payrolls, the foremost gauge of job creation, as well as data on the overall unemployment rate.

The country is also to release official data on factory orders, crude oil stockpiles and natural gas inventories. In addition, the ISM is to produce a report on service sector activity.