Australian dollar to strengthen after Morrison wins vote

Bloomberg

The Australian dollar is set to strengthen against the greenback after the nation’s center-right government clung to power in a surprise election victory at the weekend.
Despite trailing in most opinion polls, Prime Minister Scott Morrison waged a relentless attack on the Labor Party’s progressive agenda to take action on climate change and strip tax perks from wealthy Australians.
At the same time, the government ran on its record of economic management, across-the-board tax cuts and a return to a budget surplus.
As Labor’s tax proposals are off the table, giving some relief to the housing market, and with the incumbent government being viewed as stronger economic managers, business sentiment is expected to improve, Andrew Ticehurst, Sydney-based rate strategist at Nomura Holdings Inc said.
It’s a net positive for the equity market and the Australian dollar will likely bounce, he wrote in note to clients.
“With a surprise election result over the weekend, we immediately square up our tactical short in the Australian dollar and expect short-end rates to rise,” Ticehurst said.
The short position was opened at 69.55 cents last week, he said.
Option traders are more bearish on the Aussie than any other G-10 currency as the risk-sensitive asset suffers from the sudden escalation in US-China trade tensions and a slowing economy. Investors are pricing around a 70 percent chance the Reserve Bank of Australia will cut interest rates in June, overnight index swaps show.
The Aussie sank to 68.68 cents amid a rise in the unemployment rate in April and China dashing hopes the trade spat would be ended soon. It’s the lowest level since January.