[SYDNEY] The Australian dollar got off to a rocky start on Monday on heightened political uncertainty at home while diminishing global anxiety over Brexit put sterling and the other major currencies on a steadier footing.
The pound was little changed at US$1.3283, stabilising after an 11 per cent plunge to a 31-year trough of US$1.3122 a week ago in the wake of Britain's June 23 vote to leave the European Union.
While far less dramatic, Australia's general election on Saturday produced no clear winner after more than two thirds of the votes were counted, giving scaremongers a field day with headlines such as 'Chaos Reigns' splashed across front pages of some tabloid papers.
That gave investors an easy excuse to sell the Aussie, which slid as far as US$0.7410 in thin early trade, from US$0.7495 late in New York on Friday. It has since rebounded to US$0.7468.
"A hung parliament in Australia has not been historically conducive to good governance and policy reform, and the risk of losing the AAA/stable credit rating is not insignificant," said Annette Beacher, chief Asia-Pac Macro Strategist at TDSecurities.
"While the AUD could sag on the uncertainty, fiscal policy tends to be a slow burn issue and the RBA on Tuesday is more of a marquee event for the markets."
Almost all 37 economists polled by Reuters last week expect the Reserve Bank of Australia (RBA) to keep the cash rate unchanged at a record low 1.75 per cent.
Yet, there are some expectations the central bank might reinstate a clear easing bias, an outcome that should keep the Aussie under the pump.
For the other major currencies, Brexit is starting to fade as a driver with nerves soothed by promises of more stimulus from the Bank of England and talk of UK corporation tax cuts to offset the shock of leaving the EU.
The clear fallout from Brexit is that investors no longer expect the Federal Reserve to hike US interest rates this year, while other major central banks are seen poised to ease policy further.
Highlighting the theme of lower rates for longer, US Treasury yields plunged on Friday with the benchmark 10-year briefly reaching a four-year trough of 1.382 per cent, before closing at 1.461 per cent.
The euro stood at US$1.1130, versus US$1.1143 on Friday, and it was little changed at 114.29 yen. The US dollar was steady at 102.48 yen.
With US markets shut for the Independence Day public holiday, trading is expected to be subdued on the day. There is no major data out of Asia on Monday.