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Focus Shifts to Australian Election

Posted by WorldWideMarkets . on Sep 4, 2013 2:47:00 AM

So the aussie rose back above 90 U.S. cents after the Reserve Bank of Australia left the benchmark interest rate unchanged at 2.5 percent on Tuesday, mostly because the RBA did not say anything about further scope to ease monetary policy. It went above 91 U.S. cents on Wednesday after a report showed second-quarter gross domestic product grew at a faster pace than economists had forecast. 
    An FX investor betting against the wind has had two good days. But the move is likely short lived. Few were anticipating the RBA would do anything after cutting rates at the last meeting in August. The price move was probably more on surprise there was no clear signal of further easing at some point in the future.
    Focus now shifts to the Australian Federal election on Sept 7. The opposition is now leading the polls over the incumbent government of Kevin Rudd by 54 to 46 percent. But that is probably too close too call. Rudd is not known as the comeback kid for nothing. Yet even a change in leadership in Australia is unlikely to have more than a passing impact on the aussie dollar. Global flows on expectations for growth in China, the U.S. and the euro zone are likely have a bigger impact in the medium term – with the medium term coming as the week after the election.
    Rate futures are implying an 81.4 percent probability that the RBA will leave interest rates unchanged at 2.5 percent at the next meeting on Oct. 1 but the analyst consensus is for another rate cut this year. The aussie is likely to remain weak in trading for some time even as 90 U.S. cents becomes support for now.  aussie dollar trading


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