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Asian Session – Australian dollar rebounds from post-election jitters; Gold extends gains

The Australian dollar opened sharply lower on Monday after the results so far from Saturday’s federal election in Australia have pointed to no clear winner. With more than two-thirds of the votes counted, the prospect of a hung parliament has raised concern among investors that Australia might lose its triple A credit rating. Prolonged political uncertainty could make it less likely for Australia’s government to better manage its budget deficit.

The aussie fell as a result, dropping to 0.7444 against the US dollar at the start of Asian trading, but later rebounded back above the 0.75 level. However, the aussie could come under pressure again before the final election results are announced in the next few days and ahead of the Reserve Bank of Australia’s policy meeting tomorrow. Political uncertainty in Australia and the impact of the UK’s Brexit vote mean that the RBA will likely maintain an easing bias in Tuesday’s meeting.

The Japanese yen was softer on Monday as global equities continued to recover but also on growing expectations that the Bank of Japan may soon ease monetary policy. Data out today showed that inflation expectations by Japanese businesses for the next 12 months fell to 0.7% in June from 0.8% previously. It adds to Friday’s weak CPI figures which showed core inflation in May declining to its lowest in two years.

The dollar was slightly firmer at 102.72 yen in late Asian session today, after failing to hold above the 103 level on Friday. The euro and the pound were also trading higher against the yen at 114.32 and 136.49 yen respectively.

In other currencies, the pound was steady against the dollar at 1.3280 dollars, while the euro was also flat at 1.1130 dollars.

Gold prices headed higher for a fourth day on Monday as the increased global economic uncertainty following Britain’s decision to leave the European Union continued to attract safe-haven flows. The yellow metal hit a high of $1357.60 an ounce earlier in Asian trading, not far from the 2-year high touched the day after the Brexit referendum.

Also benefiting from the current market sentiment is silver, which has rallied by around 20% since the UK’s vote to leave the EU. Declining government bond yields has increased the appeal of the commodity as investors seek alternative safe-haven assets. Silver prices reached a two-year high of $21.106 an ounce earlier today.

Crude oil prices were lifted on Monday from comments by a Saudi minister who said that the oil market is near balance. This helped WTI oil futures recover from a weak open to climb to $49.16 a barrel in late Asian trading.

The rest of the day is looking relatively quiet as the US market will be closed for Independence Day celebrations. The only major data likely to attract some attention will be the construction PMI out of the UK, the Eurozone sentix index and the latest producer prices for the euro area.

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