Iowa polling drives direction as Americans head to the voting booths
Daily Currency Update
The Australian dollar edged higher through trade on Monday as investors set about unwinding so called Trump trades. Markets reacted to a shock election poll in Iowa on the weekend that showed a significant shift in favour of Kamala Harris. While not considered a swing state, Iowa was a safe red seat for Trump through the 2016 and 2020 elections, so the 3-point Harris lead in polling could suggest a broader national swing in sentiment forcing markets to pare bets on a Trump victory. The Australian dollar edged back above US$0.66 through the domestic session, only to pull back toward US$0.6590 through overnight trade as the race to the White House remains too close to call.Our attentions turn now to a jam-packed 24-48 hours headlined by the RBA policy announcement, US election and Fed policy update. We expect the RBA will leave rates on hold while espousing the need to maintain the current setting well into 2025. With trimmed mean inflation still well above target at 3.5%, market pricing for a rate cut suggests the RBA will not move to lower rates until May 2025, while we look to policy makers for any clues that may indicate a rate hike is still on the table. Americans hit the polls today and with the outcome too close to call there is ample scope for volatility as votes are counted. With Trump holding a narrow lead across key swing states, a win for the former President will likely drive further US dollar gains and add some pressure on the AUD, while a Harris win opens the door for an AUD recovery back toward US$0.67/68. The Fed policy meeting on Wednesday looms large as another risk marker. After cutting rates by 50 points at their last meeting we expect policy makers will lower rates by a further 25 basis points before pausing to re-assess conditions in December. In other news, the China National People’s Congress meets today. If Trump wins we can expect policy makers will push to increase domestic demand and capacity, while a Harris election win will allow China to open up exports. We are keenly attuned to any commentary out of China this week that may help spark a broader economic recovery. The next 48 hours are critical in shaping near-term AUD direction.
Key Movers
Price action through Monday was dominated by US election polling and a shock report from Iowa that suggest Kamala Harris holds a 3-point lead across the state. While not a swing state, Iowa has been staunchly republican through the last 8 years, voting in favour of Trump in both 2016 and 2020. Polling suggests a blue swing led by older female voters should hand the state to Harris, if indicative of a broader shift in national sentiment it could help Harris ascend from the Vice Presidency to the Oval Office. Markets worked to unwind bets placed for a Trump win as the poll offers a stark reminder that this race is simply too close to call. With Americans heading to the polls today and either outcome well and truly on the table, we expect plenty of volatility across financial markets with medium term direction uncertain, while the votes are counted and the dust settles on what has been a bruising and divided election season.Expected Ranges
- AUD/USD: 0.6520 - 0.6680 ▲
- AUD/EUR: 0.6020 - 0.6080 ▼
- GBP/AUD: 1.9580 - 1.9820 ▲
- AUD/NZD: 1.0950 - 1.1050 ▲
- AUD/CAD: 0.9100 - 0.9200 ▼