Amidst a backdrop of political uncertainty the Aussie dollar has suffered a fairly measured fall this morning. At the time of writing the local unit is buying 88.9 US cents after earlier falling to lows of 88.4 US cents to represent a drop of around .50 percent from Fridays close.
In the event of a hung parliament the fortunes of the Liberal or Labour parties will be at the mercy of three elected independents and one greens member to break the political deadlock. Given the rural proximity of the elected independent’s one would expect they may throw their support behind the party which could best service the blue collar sector, which appears up to this point to be a supporting factor for the local unit. However, whilst the leadership remains uncertain we are expecting to see a rocky few days before any real upside is discovered. It is also important to segregate the local effect on currency movements and the appeal for the greenback as a safety play given key economic feedback is due for release in the states this week. Recent greenback activity has demonstrated the currencies appeal as a safe haven remains in play and the week ahead will see a host of event risks that could increase the greenbacks appeal as a safe haven.
But for now, the Aussie dollar’s down but not out. It’ll be a rocky road but to be a little contrary we may very well see some value spotting as traders pre-empt a more favourable response in respect to the Mining Resource Rent Tax, however it is also very important to remember growth concerns particularly from the states will still decide where the balance of risk falls and ultimately continue to be the primary driver of the Aussie in the week to come.