The end of the election uncertainty and the investor-friendly policies of the Coalition produced a relief rally on financial markets. The Australian dollar bounced back above US69c on Monday after falling to three-year lows the day before the election, while local shares surged to an 11-year high on Monday before losing some of their gains the following day.
The Australian dollar more broadly has suffered from a flight to safety as trade tensions between the US and China escalate, pushing the US dollar higher. Global bond yields and share prices have also fallen in May.
In Australia, the Reserve Bank has trimmed its economic growth forecast for 2019 from 3.0 per cent to 2.75 per cent where it is expected to stay until at least June 2021, despite rising iron ore prices. This is against the background of a lift in the unemployment rate from 5.1 per cent to 5.2 per cent in April and a slide in business sentiment. The NAB business conditions index fell from 7.2 points to 3.1 points in April while the business confidence index remains below zero. New vehicle sales, a bellwether for consumer confidence, fell to their weakest level in 9 years in April, down 8.9 per cent over the year.
Now that the federal election is out of the way, all eyes will be on the Reserve Bank and whether it decides to cut the cash rate from its current level of 1.5 per cent to stimulate the economy.
