Toxic Australian politics sets the AUD adrift
I am on the Australian Gold Coast this week enjoying some warmer Queensland weather after a frigid week near Canberra and on the Southern New South Wales coast. It is interesting to see the Australian media dissect the national election down-under and everyone thinks this is going to be a messy dysfunctional parliament that achieves little and leaves the economy meandering without leadership or confidence.
On paper this is set up to be the weakest period of government in recent memory for Australia. The outcome in the House of Representatives (lower house) where the government is formed is unknown and may take a few weeks to be sorted out as postal votes are counted in several seats that are too close to call.
A hung parliament is a distinct possibility. The Australian Broadcasting Commission’s (ABC) election expert Antony Green is predicting 5 cross-benchers. The Australian Electoral Commission (AEC) currently has six cross-benchers leading in the vote. In close elections with postal votes and preferences to be considered the outcome can take a while to be known.
Election results: We don’t have a winner, so what happens now? – abc.net.au
House of Representatives – who is leading? – aec.gov.au
The cross bench will have one or two Green Party members, one or two for the new Nick Xenophon Team (NXT) party, one Katter’s Australian Party member (i.e. Bob Katter from rural North Queensland) and two other independents (Andrew Wilkie and Cathy McGowan). None of these are likely to form a formal alliance with either of the major parties, and several cannot easily be defined as left or right with individual hobby horses on populist agendas.
Election 2016: Grey a hope for NXT as Nick Xenophon ready for talks on hung parliament – abc.net.au
Cathy McGowan positions on other issues – cathymcgowan.com.au
The ABC’s Antony Green sees either the Liberal National Coalition (LNC) scraping across the line with 76 seats in the 150 seat House of Reps, or falling just short of that outcome and needing to gain votes from some of the cross-benchers in a ‘vote of confidence’ to form a minority government.
The NXT, Katter’s Australian Party and Kathy McGowan are most likely to be prepared to offer their support for the government, but will extract a pound of flesh, such as supporting the flagging manufacturing/car industry in South Australia.
An outright majority for the LNC would be the best of a bad outcome for the government, but would still leave the Prime Minister, Malcolm Turnbull, badly wounded with wolves in his own party stalking him for any sign of weakness. And given his floundering efforts since taking the leadership after a bitter internal party battle from former PM Tony Abbott in September last year, the signs are not good that he will be able to rise above the fray. His widely panned introspective election night speech already leaving him exposed to the wolves in his own party.
Over recent years, this bunch of politicians on both sides of government have proven to be excessively focussed on internal party politics, hollow slogans and cheap shots, incapable of establishing a policy narrative that might inspire the public and sustain internal party discipline.
The probability is high that the ruling LNC descends into an bickering rabble that limps along in government for an uncertain term, quite possibly at some point ditching its leader, again, before losing the next election to an equally flaccid Labor party.
The parallels with the off and on leadership of Kevin Rudd/Julia Gillard and back-stabbing behaviour in the Labor Party government from 2007 to 2013 (including a second term hung-parliament), will not be lost on most. But the slow moving train-wreck of Australian parliament appears so wrapped up in internal politicking to barely notice the warnings from this cautionary tale.
As if an unstable lower house is not enough, the Senate (upper house) is worse and promises to make it virtually impossible to pass any meaningful legislation.
Somewhat bizarrely and to the detriment of government, Australians appear to pay scant attention to who they allow on the ballot for the Senate (there were over 40 parties listed), what their policies are and who they vote for until after the fact. And then wonder why they get house full of whackos with the balance of power.
The final outcome of the Senate will take even longer to sort out, but the global trend towards fringe politics is also being played out in Australia with the return to parliament of Pauline Hanson, this time in the Senate, that appeals to all the same WASP bigotry that helped float the Brexit and Trump boats.
Pauline Hanson’s maiden speech to parliament in 1996 – gwb.com.au
The Senate is also likely to have a large number of cross-benchers that will be more concerned with grandstanding populist agendas than economic reform. This outcome is a further blow to the credibility of PM Malcolm Turnbull that had hoped that Senate electoral reforms he passed before the election and triggering an early double-dissolution election that dissolved the entire Senate, would produce a more workable Senate make-up.
This strategy backfired and leaves him open to criticism especially from the right-wing of his own party that will blame him for votes lost to the social conservatives like Pauline Hanson, Jackie Lambie, Derryn Hinch and Fred Nile.
No one expects much from this parliament and the pundits have been quick to point out that the rating agencies will be unimpressed and see little hope that a government will have the capacity to return the budget to balance. Before long Australia appears destined for a ratings down-grade, losing its prized AAA rating.
The AUD is clearly a riskier proposition for any investor as the government leaves the country floating like a cork aimless on a global sea of troubles.
This is one more tick in the column to sell the AUD, but the big problem in currency markets these days is that there is a race to the bottom. As such gold is likely to remain in demand. Barring a much stronger than expected USA payrolls report on Friday, gold may be set for further substantial gains that persist well into next year.
The USD has fallen with more ease this year, in part dragged down by the resurgent JPY. Collapsing yields are forcing investors into risky assets even as confidence in global growth remains anaemic, helping sustain strength in the AUD.
However, the AUD is languishing close to parity against the NZD, evidence of the flailing capacity of Australia to deal with global shocks or rising risks in its property market.