Aussie election set for September 14th

Prime Minister Julia Gillard has set the date for the next federal election. The move came slightly unexpected to the markets – it is not common for a government to set the date so far in advance but then again this will not be a normal election. The current Australian government is very unique – Labor holds government by a very slim majority in what is called a ‘hung’ parliament, requiring the votes of four independent representatives to pass legislation through the lower house.

A change back to the post-war status quo where one party holds a reasonable majority (without the need of independents) will be welcomed by the market. Regardless of which party wins in September, it seems that this is the most likely outcome from the next election.

Markets are unlikely to change too much on the back of this decision as most expectations were for an election sometime around August. The early campaigning though might slightly weigh on the Reserve Bank of Australia’s intentions to cut rates. We have previously written about the role monetary policy has played in light of heavy fiscal tightening in 2012-13. Gillard’s government will know very well the need to spend leading into an election campaign in order to win back vote.  Any reversal away from prudent fiscal tightening might delay any imminent Reserve Bank rate cuts, adding support to the Aussie dollar which was last trading at around 1.0471 US cents and back above 95 against the yen.

The Australian ASX200 stock index remains in positive territory with about half an hour of trade remaining at the time of writing. If it closes in the green, it will mark the longest single winning streak since the end of October 2003, coinciding with the foothills of the largest major bull market.