Aussie Dollar Rises as Markets Give Turnbull Too Much Credit

Australian 100 dollar bill_lge

The Aussie dollar was the big winner from the Coalition power struggle that gave Australia its newest prime minister. Prime Minister Tony Abbott gave way to Malcolm Turnbull, losing a party room ballot 54–44. Turnbull will be sworn in as Prime Minister on Tuesday.

It was surprising seeing the leadership change drive up the Aussie dollar.

The dollar climbed over half a cent on the news, trading at US$0.715 this morning. That was up from $0.709 on Monday. It’s the highest level the dollar has hit in over two weeks.

There wasn’t much else pushing it up. Earlier on Monday, Chinese industrial output in August fell below expectations. There were only small gains on the ASX, which rose 25 points. Metal prices edged lower too overnight. Which means the Liberal leadership tussle was key in driving up the dollar.

But why? Politics aside, you wonder why this buoyed markets as much as it did.

Turnbull is a former investment banker. He once chaired Goldman Sachs in Australia. But this doesn’t make him more qualified as an economist. Markets are putting too much confidence in one man.

If people are hoping Turnbull will steer the economy around, they have another thing coming.

I’m overplaying the importance of a small currency gain here. But I do so for a reason.

Currencies shift on a daily basis. One bit of bad news from China would send the Aussie lower again. But let’s not pretend that this leadership change means anything.

For the economy, the same problems from yesterday remain with us today. This is a change for change’s sake. It might give the Liberals a better shot at staying in power. But it won’t change the direction of the economy.

Turnbull said all the right things. He talked about economic reforms. How we must respond to challenges of a slowing economy.

But Turnbull can’t prevent the market forces at play. China’s slowdown, sluggish global growth, and weak commodity prices haven’t disappeared.

A change in leadership just papers over the cracks for a day.

Aussie dollar rises against other major currencies

The Aussie dollar is up against major currencies in early morning trade. It was one of the few currencies rising against the US dollar overnight.

The dollar gained 0.4% against the Japanese yen. It’s buying 86.13 yen at 10:00am AEST.

Against the Euro, the dollar rose 0.47%, to €0.63.

Elsewhere in Europe, the dollar is up against the British pound. It’s buying £0.46.

It’s risen against the NZ dollar too, buying $1.12.

All eyes now turn to the RBA’s September meeting minutes. Due later today, the minutes will be of key interest to currency traders. They’re unlikely to surprise.

Either way it’s a big week for currency investors. The US Federal Reserve makes its announcement on interest rates later in the week. The decision will effect most currencies. Especially if the Fed decides to raise rates for the first time in nine years.

According to The Daily Reckoning’s Phillip J. Anderson, interest rates will remain at historic lows for a long time. Phil’s brand new report, ‘Why Interest Rates Could Stay Low for the 21st Century’, is a warning to all investors.

In it, Phil proves why you can’t rely on your savings for your retirement. Inflation stemming from low rates is eating into your savings. The regular return on term deposits has halved in the last four years alone.

But there is another way forward for you.

Phil’s will show you the best way to invest your cash amid historically low rates. He’s prepared a four-step strategy that could boost your wealth. You’ll learn where to park your cash over to benefit in the coming decade. And you’ll see how this could lead to immeasurable profits. To download the report, click here.

Mat Spasic,

Contributor, The Daily Reckoning


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