Australian Dollar Strengthens After Morrison Clings to Power
Australian Dollar to Strengthen After Morrison Clings to Power
(Bloomberg) -- Australia’s dollar jumped at the market open after the nation’s center-right government clung to power in a surprise election victory at the weekend.
The Aussie was indicated 0.8 percent stronger in early trading at 69.26 U.S. cents after last week sinking to the weakest level since January.
Despite trailing in most opinion polls, Prime Minister Scott Morrison waged a relentless attack on the Labor Party’s progressive agenda to take action on climate change and strip tax perks from wealthy Australians. At the same time, the government ran on its record of economic management, across-the-board tax cuts and a return to a budget surplus.
As Labor’s tax proposals are off the table, giving some relief to the housing market, and with the incumbent government being viewed as stronger economic managers, business sentiment is expected to improve, said Andrew Ticehurst, Sydney-based rate strategist at Nomura Holdings Inc. It’s a net positive for Australian assets, he wrote in note to clients dated May 19.
“With a surprise election result over the weekend, we immediately square up our tactical short in the Australian dollar and expect short-end rates to rise,” Ticehurst said. The short position was opened at 69.55 cents on May 14, he said.
Option traders had turned more bearish on the Aussie than any other G-10 currency as the risk-sensitive asset suffers from the sudden escalation in U.S.-China trade tensions and a slowing economy. Investors priced around a 70% chance the Reserve Bank of Australia will cut interest rates in June, overnight index swaps showed.
The Aussie sank to 68.68 cents last week amid a rise in the unemployment rate in April and China dashing hopes the trade spat would be ended soon.
A speech by Reserve Bank Governor Philip Lowe on Tuesday will be critical for the near-term direction of the Australian dollar and rates, Ticehurst said. Lowe has previously used speeches to provide monetary policy guidance, he said.
To contact the reporter on this story: Matthew Burgess in Melbourne at mburgess46@bloomberg.net
To contact the editors responsible for this story: Edward Johnson at ejohnson28@bloomberg.net, ;James Ludden at jludden@bloomberg.net, Andrew Davis
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