The GBP AUD exchange rate was -0.36% lower in early trading as markets react to the Scott Morrison election loss. Ten years of Conservative government came to an abrupt end with Anthony Albanese and Labor securing a victory. In the UK, the USA has waded into the Northern Ireland protocol issue with a trade deal warning.
The GBP to AUD weakened as Labor looked set to govern without a coalition deal as vote-counting continued.
Australian dollar stronger on new Labor government
The Australian dollar was stronger after the country saw a new Labor Prime Minister sworn in.
Gareth Aird, Chief Economist at Commonwealth Bank said:
“Whoever won government [on Saturday] night was going to inherit an economy that has a high rate of inflation and a very tight labour market, and therefore … a central bank that had to act on that,” he said.
“I don’t think there’s anything in what we’ve heard in the election campaign that would shift the dial in your economic forecast in a material sense for the next 12 to 18 months,” he added.
Aird sees the Reserve Bank raising interest rates from 0.35% at each of its next three board meetings, with the first coming on 7 June.
The Australian Electoral Commission put on 75 seats in the House of Representatives – just one short of a majority. The Liberal-National coalition was left holding 58 seats.
Ten independent politicians were also set to make up part of the 150 seats available. Labor’s incoming government will now face a number of economic problems such as rising inflation and slowing economic growth. After campaigning on the Conservative government’s failure to tackle the former, Labor will have to show what plans it has to cool cost pressures.
The new government will get an early economic snapshot on Monday with manufacturing and services PMI numbers showing the state of play for Aussie businesses.
Boris Johnson awaits the Sue Gray report on parties
Boris Johnson will see the long-awaited Sue Gray partygate report this week, while the Prime Minister faces criticism over a “secret” meeting with the senior civil servant.
Opposition parties were looking for clarity on who called the meeting between Mr Johsnon and Sue Gray a few weeks ago.
Meanwhile, tensions still loom for negotiations between the UK and European Union over the Northern Ireland protocol, which could result in a trade war. The European Commission said that it will respond with “all measures at its disposal” if the Northern Ireland protocol is amended.
The US has now waded into the argument with a warning from US House speaker Nancy Pelosi that Congress will not support a free trade agreement with the UK if the Government goes ahead with “deeply concerning” plans to “unilaterally discard” the protocol.
The latest drama followed Ms Truss’s announcement on Tuesday that the UK plans to override parts of the Brexit withdrawal treaty it struck with the EU during Brexit negotiations.
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