The Australian dollar spikes following the Coalition’s shock election victory, but not everyone is convinced the rally will last

  • The Australian dollar has spiked following Australia’s shock election outcome over the weekend.
  • However, early gains are already slowly being whittled away ahead of a key speech from RBA Governor Philip Lowe on Tuesday.
  • US-Sino trade headlines will continue to dictate broader market sentiment on Monday.

The Australian dollar has spiked following the shock election victory of the ruling Liberal-National Coalition on Saturday, lifting strongly against all major crosses in early trade on Monday morning.

Here’s the scoreboard at 7.50am in Sydney.

AUD/USD 0.6901 , 0.0033 , 0.48%
AUD/JPY 75.96 , 0.40 , 0.53%
AUD/CNH 4.7941 , 0.0234 , 0.49%
AUD/EUR 0.6179 , 0.0026 , 0.42%
AUD/GBP 0.5419 , 0.0022 , 0.41%
AUD/NZD 1.0558 , 0.0031 , 0.29%
AUD/CAD 0.9276 , 0.0036 , 0.39%

After finishing last week at .6868, the weakest closing level since early January 2016, the AUD/USD currently trades at .6901, having hit a high of .6938 earlier in the session.

“The AUD popped initially higher after the Coalition pulled off a remarkable victory, defying predictions from the polls and betting markets. It’s very likely that the Coalition will either have an outright majority or in minority Government,’ said David de Garis, Economist at the National Australia Bank.

AUD/USD Hourly Chart

While the Aussie is trading firmer against all the major crosses, earlier gains have slowly been whittled away over the past hour or so, reflecting that while the election outcome was unexpected, there’s still several headwinds such as US-Sino trade tensions, along with widespread expectations that the Reserve Bank of Australia (RBA) will reduce official interest rates in the months ahead, that continue to undermine the Aussie.

“The AUD has given back some of those initial gains ahead of the tantalising prospect of a speech on the economy and monetary policy from the RBA Governor Philip Lowe on Tuesday, with the market looking for confirmation of a firm monetary policy easing bias and the read through that June is ‘on’,” de Garis said.

“Trade war news is also present as a headwind.”

Joseph Capurso, senior currency strategist at the Commonwealth Bank, expressed doubt in a note released on Monday morning as to whether the Aussie’s knee-jerk spike higher will last.

“The AUD/USD may decline to test 0.6830 this week,” Capurso said.

“There are two reasons why the AUD could fall this week — USD appreciation because of global trade concerns, and the risk RBA Governor Phil Lowe outlines the case for a rate cut in a speech on Tuesday.”

Following a surprise increase in Australia’s unemployment rate in April, at a time when inflationary pressures are already weak, there’s some speculation that Philip Lowe may signal to markets that the RBA is prepared to cut Australia’s cash rate, potentially as soon as early June.

Given the proximity of Lowe’s speech, scheduled to be delivered at 12.15pm Brisbane time on Tuesday, that could explain the Aussie’s inability to sustain the early rally seen on Monday.

While that speech and any new developments on the US-Sino trade front will continue to dictate direction, there are a few data releases of note scheduled for Monday’s trading session.

Japanese Q1 GDP will arrive at 9.50am AEST with markets looking for a small 0.2% seasonally adjusted annual rate. Japanese industrial production data for March will also be released later in the session.

Elsewhere, Eurozone current account data, along with the Chicago Fed National Activity Index in the United States, will also arrive later in the day.

US FOMC Vice Chair Rich Clarida, along with Philadelphia Fed President Patrick Harker, will also deliver speeches.