Australian dollar hit by political uncertainty
Published on 23.08.2018 13:19

The Australian dollar has taken a tumble in today’s trading session on the back of political uncertainty that may see the country install a new Prime Minister as early as this week.

Home Affairs Minister Peter Dutton has decided to challenge Prime Minister Malcolm Turnbull for the 2nd time in a week which was brought about by the resignation of more than 12 ministers from across the government

This caused investors to exit the Australian dollar this morning in droves and if infact the Prime minister is toppled later in the week, more losses are expected.

"This kind of event worries financial markets and it's reflected in the Aussie dollar and other financial assets," said Sarah Hunter from BIS Oxford Economics.

"Hopefully we'll get some clarity in the next couple of days around these issues and we'll be better placed. If we went to an election, that would be an interesting move. If Labor were elected and implemented their policies we would see quite a marked shift for the government." She added.

Some analysts believe this may be a good time to go long in the Aussie dollar because if history is anything to go by, the fall in the currency may be short lived as the market is used to Prime Ministers coming and going at regular intervals

 “The trading history of the Aussie dollar in the last 25 years or more suggests that it is not sensitive to who is in The Lodge,” said Westpac senior currency strategist Sean Callow

“But there is the occasional flicker of political risk premium, such as after the hung parliament of 2010.” He added, noting that in 2010 the drop in the Australian dollar only lasted one day.

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Andrew Masters

Analyst

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