Dollar ticks up despite unknowns

The local unit overcame jitters over electoral uncertaintly and sovereign rating cautions.

The Australian dollar ended higher on Monday, overcoming early obstacles such as news of an inconclusive federal election on Saturday, and warnings about a possible sovereign debt downgrade by ratings agencies.

At 6pm (AEST), the Australian dollar was trading at US75.13 cents, compared with US74.98 late on Friday. The currency had opened sharply lower at US74.45.

While the counting of Federal election votes is expected to go on for some time, the Senate is shaping up as a legislative quagmire, as a host of disparate, newly-elected participants look set to wield a lot of power in shaping laws.

Economists said it could point to gridlock in Canberra, preventing improvement in the budget.

Global ratings agency Standard and Poor’s said more work needs to be done to improve the budget or Australia might lose its AAA rating.

“Irrespective of the political composition of any new government, we could lower the rating if parliamentary gridlock on the budget continues and Australia’s budgetary performance does not improve broadly as we expected a year ago,” S&P added.

S&P is expected to publish its next official review of the sovereign rating before the end of July.

Moody’s Investors Service was not as downbeat, but continued to link preservation of its AAA rating to bringing the budget back to surplus.

Ray Attrill, who heads global currency strategy at National Australia Bank, said early efforts to sell the currency on the back of the election ultimately failed. He said it was more evidence that local politics has little impact on the currency, which is driven by global factors.

Mr Attrill said global risk appetite had returned, pointing to fall in the VIX index over recent days. That will translate to support for the Aussie dollar, he added.

The board of the Reserve Bank of Australia will meet Tuesday, but it is widely expected to keep rates unchanged.

- Dow Jones newswires