Election Day
Activity was predictably subdued ahead of the US Presidential Election, which remains too close to call. From an FX perspective, an Obama victory could trigger an initial pullback in USD, which appears to have garnered some support from hopes of a more growth-supportive backdrop under a Romney win – not to mention the sense that that the market may start to question the ‘credibility’ of the Fed’s forward rate guidance beyond January 2014, when Bernanke’s term expires. The more pressing post-election issue will be whether the two parties can forge quick agreements on the ‘fiscal cliff’ and debt ceiling. This effort could be compromised in the event (i) Romney wins the popular vote, but falls short in the Electoral College; or (ii) neither candidate attains the required 270 electoral votes to be declared President, raising the unusual spectre of a President chosen by the House and a Vice President by the Senate. Yes, a Romney-Biden result is not totally out of the question. The threat of partisan politics and policy gridlock in Washington could work against USD in the first instance, but this may turn into a broader risk-negative factor that would ultimately benefit such ‘liability currencies’ like USD (and JPY) to the extent we get to the edge of the cliff without a deal and US recession fears take hold. Results should start flowing in from 19:00 ET (including Virginia), and if all the state votes are decisive, a winner may be declared around 23:00 ET. Stay tuned. In the interim, investors will be digesting any news out of Greece ahead of the critical vote on the austerity package. Reports suggest that a deal is still likely to be sorted this month, but not necessarily in time for the November 12 Eurogroup meeting as hoped. Also on tap will be the RBA’s policy decision – our Australian economics team looks for a 25bp cut in the cash rate, though this is far from a done deal given the recent string of generally firmer global data and the seemingly high Q3 CPI. As such, any RBA action could weigh on AUD.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank