What would a Trump victory mean for Financial Markets?
Markets appear to have all but ruled out a victory for the Republican candidate Donald Trump in the closing stages of the US Presidential Election. Most investors also ruled out the possibility of Britain voting to leave the EU in the Brexit referendum, which caught most people by surprise. Trump is resonating with middle-class Americans, angry with how their standard of living is being corroded away by growing government and the strong lobbyist running the country. The biggest concern surrounding a Trump victory is the uncertainty how the Financial Markets will react.
Buying Gold as a Hedge
The Market and most polls have Clinton winning, if this is the case nothing happens. On the other hand, I feel that the Market has underestimated the anger and the deep resentment the public have for how the general economy and country is being managed. Donald is the only candidate that has the courage to mention the blowout in the Budget deficit and the long term effects of losing their core manufacturing to developing economies. Should Trump win, which looking at the general polling is a possibility, gold would likely surge.
Share Market response to a Trump Win
There are two main factors involved here. On one side we have the Federal Reserve threatening to raise interest rates at their December meeting and Trump’s protectionist policies having a negative effect on Equity Markets around the world. Australia’s Share Market and the economy would not suffer as much due to the fact that America only accounts for 10 percent of Australia’s exports. But the uncertainty will be felt regardless until the Market can gauge the full effects of a Trump administration. The unpredictability of Trump winning and so call non-alliance with major lobbies, makes him an unknown factor in the world arena. If we are to believe the polls and mass media, Clinton will win the election and the current policies will remain unchanged. But if Trump wins, maybe the reckless behavior of Central Banks and growing government debt will be challenged and large government bodies may have to work for a living rather than feed of the ever shrinking middle-class taxes.
Aussie Dollar Bounces Back
Not so long ago we had the major economists telling the world that the Australian Dollar was heading for 65 cent to the US. Now we are told that due to global strength and the increase in commodity prices and the rise in long-term bond yield the Aussie is the flavour of the month. This is why trading fundamentals will only lead to losing trades. Once you have read or hear news anchors comment on the strength of the Australian Dollar it has already been factored into the price. It would make more sense to look at the currency on technical bases and then make an informed decision rather than rely on public opinion.
The above chart only confirms the current price action which would indicate that the main horizontal resistance line is being tested. For confirmation, we must wait for the break and a retest of this line to get a clear picture of where the Aussie Dollar may be heading in the long term.