US Presidential election result could cause Aussie dollar to rise

While Americans hit the voting booths days ago, there is still no clear result in the US Presidential Election.

Commonwealth Bank’s Head of International Economics, Joseph Capurso, said the general market consensus at the moment is leaning towards a narrow victory by former Vice President Joe Biden.

In addition, it is looking like the most likely scenario would see the Democrats keep their majority in the House of Representatives and the Republicans keep their majority in the Senate.

According to Mr Capurso, should this scenario come to fruition, it would likely cause the Australian dollar (AUD) to ‘lift modestly’.

“We expect the AUD to lift modestly – 2 per cent to 3 per cent over one to two months – above our existing baseline of a stronger Australian dollar,” he said.

“The strength in the AUD reflects the weaker outlook for the US economy because uncertainty about Congress agreeing to need further fiscal stimulus.  But any reaction by the AUD/USD is likely to be short-lived because we judge a Biden victory is largely priced into the USD.”

A scenario that seems less likely to occur - given the current results - is President Donald Trump retaining office.

However, should this scenario come to fruition, with the Democrats likely retaining their majority in the House of Representatives and the Republicans likely keeping their majority in the Senate, Mr Capurso said this would cause the ‘greatest financial market reaction’. 

“Should President Trump win, we expect the USD to increase significantly by 4 per cent over one to two months, pulling AUD/USD lower,” he said.

“By contrast, the AUD/USD decreased by 8 per cent in 2016 following President Trump’s unexpected victory. As incumbent, President Trump’s campaign promises are likely to be less radical than in 2016.

“The AUD would ease because of the enhanced risk of the US government increasing its disagreements with China on a host of issues such as trade, technology and security in the South China sea. 

“In any case, we expect USD strength to fade after a few months if President Trump wins like it did in early 2017, supporting increases in the AUD/USD.”