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Hewison Insights

Finalising the US Debt Ceiling Deal: A Compromise That’s Important to You

Alexi Guagas
Senior Associate Adviser
6 Jun 2023

Global markets are currently breathing a sigh of relief following negotiations from both the Democratic and Republican parties finalising a deal to raise the US debt ceiling. The deal is now passing through both the House of Representatives and the Senate. The US has avoided the embarrassment of a ‘worst-case’ scenario: a default by the U.S. government on its debt.

As a result of this deal, the US federal government will now be allowed to borrow money until well after the next presidential election (due in November 2024). It will also help stabilise current global market confidence.

So, what does this mean for Australian investors, living thousands of kilometres away and how does this deal affect Australian superannuation funds and your retirement savings?

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Global market volatility is impacted from a prolonged and contentious US debt ceiling debate. This therefore has a spillover effect on global markets, including those in which superannuation funds invest. Volatility can affect the value of investment portfolios and impact your retirement savings.

The uncertainty surrounding a U.S. debt ceiling deal leads to fluctuations in currency exchange rates. These fluctuations can affect the value of international investments held by superannuation funds, which would thereby impact returns.

Lastly, investor sentiment plays a crucial role in shaping financial markets. If the debt ceiling debate was to continue, it could generate negative market sentiment and further erode investor confidence. This would lead to reduced investment flows into global markets, affecting the returns for superannuation funds.

It is without question, finalising the US debt ceiling deal was of paramount importance for financial markets, including Australia’s. With the US debt ceiling now raised, it should help maintain global financial stability and preserve global investor confidence.

The impact on Australian superannuation funds continues to be influenced by global market dynamics, including volatility, currency fluctuations, and investor sentiment. Monitoring these developments and ensuring you have put in place prudent investment strategies can help mitigate any potential risks.

Volatile markets can be quite anxiety provoking. They say, when it comes to worries it can be helpful to ask yourself “is there something I can do about this” if no, let the worry go, and change your focus, if yes, take action – plan for what, when, and how.

Given the complexities surrounding global financial markets, consulting a financial adviser can be invaluable. Consider talking to one of Hewson Private Wealth’s many experienced Financial Advisers today.