Australian political limbo drives dollar lower

Australian Prime Minister Malcolm Turnbull speaks during a press conference on July 3, 2016 in Sydney, Australia Image copyright Getty Images

The Australian dollar weakened after the country’s election over the weekend ended up too close to call, raising the prospect of a hung parliament.

The benchmark ASX/S&P 200 also fell on Monday by 0.5% to 5,222.20 points.

Neither the ruling Liberal-National Coalition nor the opposition Labor parties were able to secure an outright majority.

The result won’t be decided until at least Tuesday, which is when vote-counting resumes.

The local dollar started about half a US cent lower around $0.7435 but later edged back up to $0.7469 in light trading.

The uncertainty and an increased risk of Australia having it’s “AAA” credit rating cut has “dented” the country’s currency, Vishnu Varathan from Mizuho Bank said.

Australia’s central bank is also expected to hold fire at its policy meeting on Tuesday, analysts Capital Economics said:

“The fallout on the economy and financial markets from the uncertain outcome of the Federal election will probably be relatively mild and short-lived and is unlikely to prompt the Reserve Bank of Australia to cut interest rates from 1.75% to 1.50%.

“It is concerns over the weak outlook for inflation, not the political outlook, that will trigger a rate cut to 1.50% in August,” it said in a report.

Elsewhere in Asia, Japan’s Nikkei 225 is down 0.6% and Korean stocks are trading flat.

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