The Australian dollar spiked higher as news emerges that former Treasurer Scott Morrison has become the country’s next prime minister, winning the party vote 45 to Peter Dutton’s 40.
The Australian dollar spiked as high as US$0.7290 in the wake of the news, from levels as low as US$0.7235 shortly before it broke. The Aussie had fallen as low as US$0.7199 as now former Prime Minister Malcolm Turnbull’s political woes had worsened. The Aussie started the month around US$0.7429.
The Aussie was at US$0.7275 at 12:35 P.M. SGT on Friday.
But Shane Oliver, head of investment strategy and chief economist at AMP Capital, downplayed the effect of the political turmoil.
“This is the sixth PM this decade, so we have now caught up to Italy. The turmoil is not great for Australia and has also seen investment markets start to get nervous about the coming Federal election,” he said in a note on Friday. “Of course, it’s dangerous to overstate the impact of the periodic bouts of leadership instability in Canberra seen this decade on the economy. It seems that as the ‘Lucky Country,’ the economy still manages to muddle along despite the mess in Canberra and I doubt that the latest leadership turmoil will change things that much.”
Oliver added that Morrison’s win was seen as a “reasonably good outcome” from an economic and investment point-of-view.
“He did not bring on the challenge so can’t be blamed for the instability. More importantly he is seen as a reasonably sensible policy maker, is respected by investment markets in his role as Treasurer and is seen as a centrist giving the Liberals perhaps a better chance of victory in the coming Federal election,” Oliver said, adding that’s probably why the Australian dollar bounced on news of his win.
One analyst noted that contentious politics wasn’t the only factor that has been weighing on the Aussie.
“Adding fuel to the fire was the Australian government’s decision to ban Chinese maker Huawei from participating in the build-out of the 5G infrastructure on security grounds. The news is sure to further aggravate the already shaky Sino-Australian relations and could be a source of constant pressure on Aussie,” Boris Schlossberg, managing director of foreign-exchange strategy at BK Asset Management, said in a note on Thursday.
This article was originally published on Friday, 24 August 2018 at 11:15 A.M. SGT; it has since been updated.