U.S. election result likely to negatively impact AUD; Trump’s short-term protectionist policies to support USD, says ANZ

The United States election result is expected to negatively impact the Australian Dollar, while the newly elected President of the country, Donald Trump’s protectionist stance on global trade and his preference for looser fiscal policy and a smaller role for monetary policy should be supportive of the USD, particularly against small open economies like Australia.

However, in the near term, ample liquidity has once again short-stopped the initial negative reaction (just as it did in the wake of Brexit) and with the campaign over, this period of calm could persist in the near term. That said, on a medium term basis, the definitive vote for change from the American people will likely have broader ramifications for currency markets than the Brexit vote did, ANZ reported.

Since Trump does not possess an extensive political record in the past, it will take some time to monitor and gauge his moves. Looking further ahead, the outlook for the AUD becomes more clouded, posing greater downside risks, driven by trade policy risks and the dynamics around the USD.

Further, a Trump administration is likely to favour a more expansionary fiscal stance for the US relative to continued monetary largess. Historically, a tightening in monetary policy, when accompanied by looser fiscal policy, has been a boon for any currency.

"As such, the range in the AUD (0.72-0.78) likely remains intact for now, and our near-term forecasts, which reflect this range, remain appropriate," ANZ commented in its latest research report.