AUD has a political risk premium? - Westpac

Sean Callow, Research Analyst at Westpac, explains that that the AUD remains by far the weakest G10 currency since the late August change of prime minister, which leaves open the possibility that AUD has a political risk premium, reinforced by the Wentworth by-election.

Key Quotes

“While the government’s apparent loss of its parliamentary majority doesn’t seem likely to result in a no-confidence motion, the huge swing against the Liberal Party is a blow for its prospects in the federal election.”

“AUD/USD’s resilience in recent days to renewed equity turmoil and EM FX pressure may be in part due to the ongoing rally in the likes of iron ore, coal and LNG. Our index is at 8 month highs.”

“AUD/USD seems likely to be capped on rallies towards 0.7150 and supported either side of 0.7000.”