AUD on the riseAs global markets push higherNew govt. in Canberra to push up wagesWill keep pressure on RBA to hikeCould support AUD going forward

File image of Anthony Albanese. Credit: Alex Guibord, Source: Flickr. Licensing: CC 2.0.

The change in government in Canberra is unlikely to shift the Australia Dollar's outlook, which some currency analysts say remains constructive.

The Australian Dollar starts the new week by advancing against the U.S. Dollar, Pound and Euro helped by a positive global investor sentiment, reflected in rising stock markets.

News that Shanghai was looking to reopen following weeks of strict Covid lockdowns appears to be one factor behind this improved sentiment.

"We remain focused on the rolling thermal energy crises and ramping up of Chinese infrastructure themes which will act as support for the A$ over time. So we would be looking for opportunities to buy into weakness," says Richard Franulovich, Head of FX Strategy at Westpac.

The Pound to Australian Dollar exchange rate is a third of a percent lower at the start of the week at 1.7675, which is well within a tight range that has dominated the pair since May 10. (Set your FX rate alert here).

GBP/AUD has traded a remarkably tight range between 1.78 and 1.77 for much of May but should AUD/USD break higher over coming days a move through the lower end of this range should be targeted.

Above: GBP/AUD at daily intervals.

The Australian to U.S. Dollar exchange rate is a percent higher at 0.7110, its highest level since May 06, against the Euro the Aussie is two thirds of a percent stronger with EUR/AUD now at 1.4912.

Gains for the Australian currency come on the same day Anthony Albanese takes over as the country's new Prime Minister following weekend elections that saw his Labor party win the most seats and it appears Labor are on course to form an outright majority.

"Millions of Australians are potentially in for a bigger pay rise under the Labor Government," says Matthew Bunny, Economist, at St.George Bank.

The Labor party said it would make a submission to the Fair Work Commission to raise the minimum wage by 5.1% if it won, which means the pay rise would broadly match the annual growth rate of CPI inflation.

The current national minimum wage is set at $20.33 per hour.

On balance this is an inflationary fiscal policy decision that will maintain pressure on the Reserve Bank of Australia (RBA) to pursue higher interest rates, which can be considered supportive of Aussie Dollar valuations.

The market expects the RBA to raise rates by a staggering 235 basis points over the remainder of 2022, more than any other developed market central bank.

Should the RBA disappoint against this expectation the Aussie Dollar could come under pressure, but the odds of this are reduced by a more generous approach to wages from the incoming government.

"The Commission reviews the minimum wage annually, with the change usually coming into operation from 1 July. Cost-of-living pressures are weighing on the outlook for spending despite the strength of the labour market. The squeeze on household budgets is likely to be more acute for lower-income households," says Bunny.

On balance however most economists see little significant change in Australia's economic trajectory as a result of the weekend vote.

"Australia's real GDP growth rate should remain robust versus other G10 economies into 2023, and it's unlikely the election result will change the monetary policy outlook in the short term. We retain our positive view on the Australian dollar," says Mark Haefele, Global Wealth Management Chief Investment Officer at UBS AG.

UBS hold an an end-June price target of 0.74 against the U.S. dollar.

Above: AUD/USD daily.

"Climate policy will gain momentum, which should benefit transition sectors. We don't expect a dramatic change in Australia's strategic approach to China policy, but we would expect less of the combative public commentary that marked the prior government's approach," says Haefele.

Westpac meanwhile says near-term Australian Dollar performance will remain challenging.

"With three weeks to go to the next 50bps hike from the Fed and 1 week to go to record QT commencing, we still expect to see some further US$ strength. And with global growth weakening, stagflation risks rising and a clear weakening in Chinese activity, the A$ should remain capped by the 0.7060/ 0.7140 region," says Franulovich.

"However, we would not want to get too negative below 0.70 - we remain focused on the rolling thermal energy crises and ramping up of Chinese infrastructure themes which will act as support for the A$ over time. So we would be looking for opportunities to buy into weakness," he adds.