The AUD continues to lag the risk on tone in markets, which is particularly evident in equities. AUD/USD is up from the lows, but is still down 0.30% from the NY close. Some of the underperformance is being attributed to uncertainty around this weekend's election result.
- Arguably the greatest uncertainty for markets rest with a hung parliament result, where neither party can form a majority and have to rely on minor parties to from government.
- The tightening of opinion polls over the past week has seen this risk rise. One possibility is the Labor Party relying on Greens support to form government. This probably creates the most policy uncertainty in terms of what concessions the Labor party needs to make to ensure it can pass legislation.
- There are some parallels with the 2010 election, where neither party had an outright majority and Labor needed to rely on the support of independents to form government.
- This election was held on August 21 2010, which was a Saturday. AUD/USD closed the Friday before at 0.8939. We closed Monday the 23rd of August at 0.8913, although did have an intra-day low of 0.8833. The DXY was higher on the day as well, which could have impacted A$ performance.
- AUD/USD was weaker through Tues/Wed of that week, but again the USD was firmer through this period. Australian equities also fell, but recovered strongly into early September. Likewise for the AUD, which was at fresh highs by the start of September that year. By early September it was also clear that the Labor party would form government with the support of the independents.
- Hence the 2010 election didn't have a lasting impact on market sentiment.