Back when I was new to the currency market, it didn’t take me long to figure out one thing: Currency investors don’t like uncertainty. Uncertainty is like a plague.
Well, I’m reminded of this fact as I see the election results coming in from Australia.
Australians ousted their former prime minister Kevin Rudd just over a couple months ago, and the new interim prime minster, Julia Gillard, had only been office for weeks when she called an election.
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This is when it all started to backfire. But let’s back up for a second.
Why was former Prime Minister Rudd ousted? He wanted to propose an enormous tax on mining companies like BHP Billiton and Rio Tinto that could have taken away anywhere from 40 to 50 percent of the companies’ profits.
Then, as if it thought they were making things better, Rudd’s party ousted him and temporarily put Julia Gillard in his place. She proposed that the tax on the miners should only be 30 percent.
Weeks after she took Rudd’s place, she called for the election. The problem is her opponent, Tony Abbott, said that he would do away with the new tax on the miners if he was elected.
So finally on August 21, the Aussie’s went to the polls and voted. Here’s where it gets uglier. As I’m writing this, over 75 percent of the votes have been counted and neither Gillard nor Abbott has a majority — Gillard’s Labor Party has 71 seats so far and Abbott’s Liberal-National coalition has 72!
That’s the first time that has happened in Australia in 70 years.
Now Australia has a hung parliament and it won’t know for at least several days who will end up being the country’s new prime minister.
Financial markets hate when this happens, and it really can show up in the currency market. The Australian dollar slumped 0.6 percent as the markets reopened after the weekend on the back of this huge indecision.
I will say that at least for now, there are two beneficiarie — BHP and Rio Tinto.
That’s because Australians don’t seem to be in favor of a huge tax on these mining companies. That means it’s likely that the government will either have to scrap the plans for this tax on the miners or greatly taper back the percentage that they tax them. Either way, this is a win for these miners for now.
So in this bout of uncertainty, we have one clear loser for now — the Aussie dollar — and two clear winners in the mean time — BHP and Rio Tinto.
Keep an eye on all of this to see how it unfolds. There are still more votes coming in the mail that won’t be known for days.
By the way, they take voting very seriously in Australia. If you don’t vote, you’re fined AUD$20.
About the Author: Sean Hyman
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