AUD: Trading An Unusually interesting Election In Australia – Credit Agricole

Australians go to the polls on July 2nd, and for a change, this could be a market moving event. The team at Credit Agricole sees two distinct scenarios:

Here is their view, courtesy of eFXnews:

Australia’s federal election on 2 July is set to be more interesting for financial markets than those in the recent past. There is an unusual degree of divergence in the economic policies of the two main parties, the Liberal-National Party Coalition (L/NP) and the Australian Labour Party (ALP).

 The final outcome is hard to predict: this is a double-dissolution election (both houses will be turned over); there are new voting rules for the Senate; and the country looks set to shift to a four-party system.

A victory by the incumbent L/NP in both the House of Representatives and Senate would, we believe, be a boost for the AUD. Being long AUD/NZD on such an outcome would be better than being long AUD/USD, given the ongoing concerns about global growth, especially in the wake of the Brexit referendum in the UK.

While both the main parties have questionable plans for returning the budget to surplus, those of the ALP are the less credible, in our view. We would expect an ALP election victory to raise concerns about Australia’s AAA credit rating and be a negative for the AUD.