The RBA made the decision to keep Interest rates at 1.75% although some have speculated a 25 base point reduction could be on the cards in August.
The Reserve Bank of Australia held interest rates overnight at 1.75% as widely expected at the time of the Australian general election. The Australian dollar is largely being driven at the moment by the news of Brexit as far as GBP AUD is concerned but also by its own domestic election which took place on Saturday.
However, we don’t have a winner as yet with no clear majority for the coalition government or rival Labor. Australian legislation must now allow 13 days after polling day for all postal votes to come in. As it stands 1.5 million postal votes were sent out but only 1.1 million have been returned so it could be another week or so before a winner is declared. The current Prime Minister Malcolm Turnbull was expected to see a majority but as things stand at the moment a hung parliament seems a likely outcome. The political uncertainty that goes with this is likely to show itself in dollar weakness although not at the same levels of Brexit!
The other issue is that Australia’s triple-A credit rating could be under threat as a result of a close result which makes reform difficult to impose. Australia is one of a shrinking minority of countries that holds the top rating from all three credit rating agencies. The UK lost its last triple-A credit rating from Standard and Poor’s. A close result in the coming days could create some headwinds for the Aussie going forward and dollar weakness.
What will be most interesting is how the Australian central bank views Brexit in the global economy, the risks to Australia and whether more monetary easing will be required as a result. Considering Australia have already offered their support for a trade deal between Britain and Australia then this is one country that may not be too worried about the potential implications at this stage.
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