Australians head to the polls on August 21 and there will be implications for the Australian dollar.
AUD/USD has fallen in the past two sessions but has made a slight recovery so far on Friday.
The most likely outcome of the election is a slim majority for the incumbent Labor Party in the Lower House. If, however, the Liberal/National Party coaltion pulls out a win, we would see the Australian dollar rally. The coalition says it will scale back the proposed mining tax, something that will encourage more foreign investment and development in Australia. Bookmakers are suggesting a 75% chance of a Labor majority.
The big story will likely be the Senate. The most likely outcome is that the main parties will split the vote and that the Greens will holding the balance of power in the Senate. The Greens favour a more punitive mining tax which is something that will hurt AUD. The outcome, however, will be up for prolonged debate.
In forex,a big move normally follows an election, especially when the outcome is uncertain. The 100-day moving average at 0.8840 is critical support. A decline lower points to a further 200-pip fall. The failed rally on Thursday forms a bearish candlestick as well.
Trading around an election can be treacherous. Make sure your stops are in place.