As Australia heads towards an uncertain election weekend, there may be volatility in store for the Australian Dollar (AUD). Here’s what could happen.
Just days before Australians cast their votes, the Federal Election has become too close to call. Labor’s lead in the polls over the Liberal-National Coalition has dwindled to 51%-49%, down from a 54%-46% two weeks ago.
Additionally, the chances of a hung parliament are increasingly high. If the Coalition loses just one seat, it loses its majority, while Labor must gain seven seats in order to take the helm. If the Coalition drops one or more seats and Labor fails to win seven, neither major party will be able to form a government on its own.
So, what does all this mean for the Australian Dollar?
AUD Volatility Ahead
Friday’s trade could bring a continuation of the volatility we’ve seen in recent weeks. AUD exchange rates may fluctuate but remain in a relatively narrow range, with investors hesitant to buy or sell aggressively amid the heightened uncertainty.
The ‘Aussie’ could be particularly sensitive to any political news, too, and slightly less responsive than usual to economic data.
However, after the election results we could see significant movement in AUD.
Politics aside, investors often prefer certainty. A win for the Coalition would provide political continuity, which may help AUD stabilise. A change in government, on the other hand, could mean a shift in economic policy, which might cause some short-term volatility or weakness in AUD as investors reposition.
If neither main party secures a majority, which looks increasingly possible, there may be headwinds for the ‘Aussie’. A hung parliament could mean extended political uncertainty, which would likely put AUD under pressure.
In such a scenario, there may also be some short-term peaks and troughs as reports of negotiations ripple through the currency markets.