Australia’s Upcoming Federal Election and the Markets

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With the government’s budget announced last Tuesday, the next political event for Australia is the impending federal elections for the Senate and House of Representatives.

Australia has a somewhat complicated electoral process. And, typically, news ahead of the election can be a bit confusing to those who don’t live Down Under. So given that the markets will be focusing on these elections, let’s break it down a bit.

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When is it?

Although talk of the election is dominating press coverage, and candidates are already out trying to convince voters, the official campaign period hasn’t started. In fact, the date for the election hasn’t even been set yet. However, a good estimate of when it will happen can be made.

The Prime Minister (currently Scott Morrison, after successfully challenging Malcolm Turnbull’s leadership late last year) has to call an election a minimum of 33 days ahead. This is to allow for an official period of campaigning. The current parliament expires, in part, on May 18. This means at that the absolute latest, the election date has to be set before April 15th

However, press speculation is that the election could be called for May 11th. There is such a wide consensus among the political class on that date, that the current party in power, the Liberal party, whose leader would call the election, are organizing on that schedule. This would, therefore, mean that they should announce the election date no later than April 8th.

Who Will be Elected?

Australia has a Westminster system, which means that the official office of Prime Minister does not exist. Ultimately, the leader of the party that gains the most support in both the Senate and House of Representatives is chosen to head of the government.

However, only half of the Senate’s mandate expires on May 18th. And the House of Representatives has a mandate until November 2nd. This means that technically only half of the current Senators could be up for election. And this would be less likely to change the leadership math. However, there is a long-standing tradition to call an election for both the Senate and House at the same time. And the understanding is that this will not be an exception.

Given the presumed timetable, the election could have a couple of difficulties. Among these would be campaigning through Anzac Day and school holidays.

And the Markets?

The AUD (and by extension, the NZD) could experience a bit of extra volatility digesting different news reports over the five-week period. Let’s not forget that the current government has only a majority of one through a confidence and supply agreement with crossbenchers. These crossbenchers are parliamentarians who don’t caucus with either the leadership or the opposition.

According to the latest polls, there is a swing in support towards the opposition labor by a wider margin than the Liberal/National Coalition had prior to their election to the government. The Australian newspaper projects that Labor will gain up to 90 seats, while the Coalition will drop to just 55 seats. Generally, a shift from a right wing to a left-wing government can be considered negative for the markets. And we could see some weakness in the AUD as polls show support for a switch in power.

On the other hand, a recent election in the most populous state of Australia, New South Wales, led to a victory for the ruling coalition. This shows that polls might not accurately reflect national sentiment. Though, to be fair, the small difference in the support for either side in the polls is within the margin of error.

If there is one thing the markets don’t like, it’s uncertainty. And that looks to be the defining trait of the upcoming Australian Federal elections.

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