Aussie Dollar Gears Up For Potentially Massive Surge After Favorable Outcome Of Recently Concluded Elections
Monday proved to be a great day for the Australian dollar (AUD) which enjoyed a noteworthy uptick during the day and sparked forecasts of the potentially biggest surge of 2019. This comes amid the recently concluded Aussie presidential elections in which Prime Minister Scott Morrison secured the win.
Morrison’s win seems to have encouraged investors to adopt a higher risk appetite, and the AUD ended up on the gaining side. The currency surged by more than 0.9% following Morrison’s victory. One of the reasons for the surge is the fact that investors view the winner’s Liberal National Coalition as business friendly compared to the opposition.
"The surprise victory is fueling the rally as many expected the Labour party to win but an Australian rate cut is still very much on the cards in the coming months, and that will weigh on the currency," stated Esther Maria Reichelt, a Commerzbank forex analyst.
Morrison's tenure is expected to work towards strengthening the Aussie economy, especially amid latest concerns of the rising unemployment rate. There is also the expectation that the country’s central bank, the Reserve Bank of Australia (RBI) might slash interest rates, and this might happen as early as July.
Some key sector individuals do not believe that the AUD will continue to surge
Despite the recent AUD’s surge on Monday and the expectation that the currency will be part of the largest uptick this year, some remain unconvinced. RBA Governor Philip Lowe recently noted that the market expects a strong monetary easing policy. He also noted that the AUD lost some of its gains not long after the surge fuelled by the election outcome due to the expectation of a monetary policy easing.
Commonwealth Bank’s senior currency strategist Joseph Capurso also released a note on Monday, through which he doubted the currency’s ability to maintain its momentum. Capurso predicted that the AUD/USD stated that the currency pair would fail to test the 0.6830 levels this week. He revealed that he expected the currency to turn bearish this week due to the rise of the US dollar (USD) due to concerns revolving around global trade as well as the risk of a rate cut by the RBA.
The USD demonstrated a strong performance on Monday amid the high tension between China and the U.S. as talks to end the trade war between the two countries seem to be yielding little to no results. The trade war has disrupted Chinese firms, especially those that export their products to the U.S. China is also one of the countries that trade heavily with Australia.
Lowe's RBA speech has been scheduled for Tuesday, and the content of the speech might subdue the AUD bulls. The currently prevailing global economic uncertainty fueled by the trade wars between China and the U.S. have a negative impact on many economies, including Australia. The same can be said or the rising political pressures in Europe due to Brexit, which end up having a negative impact on the AUD’s performance.