The Australian dollar is weaker, weighed down by political uncertainty

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The Australian dollar has fallen modestly to start the week, weighed down by political uncertainty following elections in Germany and New Zealand held over the weekend.

Here’s the scoreboard as at 7.50am AEST.

AUD/USD 0.7955 , -0.0007 , -0.09%
AUD/JPY 89.22 , 0.07 , 0.08%
AUD/CNH 5.2342 , -0.0051 , -0.10%
AUD/EUR 0.6679 , 0.002 , 0.30%
AUD/GBP 0.5896 , -0.0004 , -0.07%
AUD/NZD 1.0856 , 0.0013 , 0.12%
AUD/CAD 0.9817 , -0.0006 , -0.06%

The Aussie is slightly weaker against US dollar, falling in sympathy with the euro and New Zealand dollar following elections in New Zealand and Germany held over the weekend which delivered no clear-cut winner.

“Uncertainty over whether the new parliament will be a Nationals/NZ First affair could linger for weeks however, so ‘relief’ that the market’s least preferred option of a Labour-Green collation has been avoided isn’t likely to carry the NZD far for the time being,” said Ray Attrill, head of FX strategy at the National Australian Bank, in response to the New Zealand election result.

While the New Zealand election has weighed slightly on the Kiwi dollar, Attrill says the German election result is more troubling for markets.

“Merkel will still be chancellor and for a fourth term, but the BBC’s Berlin correspondent is describing the result as disastrous for Merkel, who has been punished for opening Germany’s door to almost 900,000 undocumented refugees and migrants,” he says.

“The far-right AfD looks set to capture about 13% of the national voted and might end up as the strongest party in the state of Saxony.”

That result has seen the euro give back ground against the US dollar, largely explaining the modest risk-off tone seen in AUD/USD so far this morning.

AUD/USD Hourly Chart

In the absence of any market-moving economic events in Asia, the Aussie dollar is likely to be driven by investor sentiment, along with the gyrations in Chinese commodity futures following recent price weakness, on Monday.

“It’s a light week for data so sentiment is key for the Aussie and there are some signs that a run toward support is on the cards,” says Greg McKenna, chief market strategist at AxiTrader. “0.7850 seems a reasonable level to test this week.”

On the data docket, markets will receive the latest Nikkei-Markit flash manufacturing PMI report from Japan at 10.30am AEST.

Later in the session, German business confidence along with the Dallas Fed manufacturing index and Chicago Fed National Activity Index will be released in the United States.

It’s debatable just how much influence these releases will have on financial markets, including on the Aussie dollar.

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