Australian financial markets responded positively on Monday to the landmark victory of the centre-left Labour Party, viewing it as a boost to the government's ability to counter potential economic fallout from Donald Trump’s global trade war.
Prime Minister Anthony Albanese achieved a decisive win in Saturday’s general election, propelled by public dissatisfaction with Trump-aligned policies, which led to a significant loss for the conservative Liberal-National coalition.
The outcome increases the ruling Labour Party's majority in the lower house and strengthens its presence in the Senate, giving the government greater flexibility to address what Treasurer Jim Chalmers called a “crazy” global economic environment.
Shane Oliver, chief economist at AMP, noted that Labor's win had been anticipated by recent opinion polls and was unlikely to catch investors off guard.
“I think it's probably going to be more steady as she goes (on fiscal policy), rather than the aggressive change one way or the other. Now of course if the economic outlook changes dramatically, then they may have to rethink,” Oliver said.
“The trade situation is still a threat, even though in the last few weeks that seems to have receded a little bit.”
Goldman Sachs maintained its projections for fiscal spending, GDP growth, and Reserve Bank of Australia (RBA) policy rates, stating that Labor’s recent policy announcements are unlikely to significantly affect the economy in the short term, Reuters reports.
On Monday, the Australian share market dipped 0.4%, primarily due to an earnings miss from Westpac Bank, with recent volatility in US markets also contributing to the decline.
The Australian Dollar climbed to a five-month high of $0.6481, buoyed by a weaker US Dollar as investor confidence in American assets wavered amid Trump’s unpredictable trade policies.
Meanwhile, 10-year government bond futures declined by 5 ticks, mirroring a drop in US Treasuries on Friday, following strong US employment data that reinforced expectations of a more cautious approach to policy easing by the Federal Reserve.
Interest rate swaps continue to fully price in a quarter-point rate cut by the Reserve Bank of Australia this month, bringing the cash rate down to 3.85%, with markets anticipating around four cuts in total by the end of the year.
Analysts believe Labour’s election victory enhances Prime Minister Albanese’s leverage in trade negotiations with the United States and gives the government greater flexibility to increase fiscal spending to mitigate risks from a potential global tariff war.
Australia’s economy is forecast to gain momentum this year, supported by a rebound in consumer spending, after growing at a modest 1.3% in the previous quarter.