Collinson FX: November 6, 2018 - Quiet start to huge week

Steinlager 2- Start - PIC Coastal Classic - October 19, © Richard Gladwell

Collinson FX: November 6, 2018 - Quiet start to huge week

A quiet start to what could be a ‘huge’ week!? The week will be dominated by the US Mid-Term elections. The outcome has the potential to dominate the direction of markets for the next year or so. If the Republicans retain both houses of Congress, then the Trump agenda will continue, with the booming US economy and sentiment. If the Republicans hold the Senate and lose the House, then the prospect of conflict and tempered direction could stagnate markets. A loss for the Republicans would spell economic disaster for Trump and his administration. He would be effectively become a ‘lame ‘duck’ until the Presidential elections in 2 years.

The impact on markets, of a Republican loss, would hit markets hard. Equities would fall, with the risk-on sentiment, while interest rates would soften. It is likely that he would get little done and the Democrats would ‘resist’ him at every turn. This would stagnate the economy and directly feed through to a weaker Dollar. A win would also set the platform for a trade deal with China, which would be positive for the trade dependent, Australia and NZ.

The RBA meets today, although Australia will be focused on the Melbourne Cup, but they are unlikely to move rates. The rhetoric will be noted, with spelled out risks, driving the local currency. The Fed and RBNZ are also scheduled to make their own decisions this week. The RBNZ will follow the RBA, but the Fed is likely to act and consider the political fallout from the election.

Keep your hats on for the Roller-coaster ride that will be US electoral turmoil. The AUD will open trade around 0.7200, while the NZD holds above 0.6650, both ready for a wild ride. Polls point to a Republican loss, but they did so in 2016, so Trump may shock the world again!?

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