6th November 2018
Now that we’ve ticked over into November, the most magical time of the year (or every four years to be precise) is upon us; the US midterm elections!
We’re sure you’re bursting at the seams with excitement. But just in case you’re not (or have no idea what we are talking about), here’s some background info to get you geared up.
Every four years, halfway through the sitting of a president’s term, the midterms arise and basically indicate the success of the term so far. This year, they are set to take place on Tuesday the 6th of November, and are rumoured to be the most important midterms in years.
US political parties: a beginner’s guide
Let’s talk parties (sadly not the fun kind). US politics is divided into two main parties; the Republicans and the Democrats.
The Republican Party is currently in power, and backs President Donald Trump. This party is more conservative, and believe that the federal government shouldn’t play a big role in people’s lives. Basically, if you were going to a Republican birthday party, you’d probably expect to find a basic Coles mud cake (still delicious), and the birthday boy letting you dish up your own slice.
On the other hand, the Democrats (like Obama) tend to take a more liberal stance, hence attracting minority groups. Democrats believe that the federal government should play a more active role in people’s lives, particularly those who are in need. If you were going to a Democratic birthday party, you’d probably find a fancier cake (maybe a Freddo ice cream cake), with the birthday boy insisting he’ll dish up each slice to share with everyone.
There are all sorts of elected positions on the ballots, but the main focus is on Congress.
Congress is made up of the House of Representatives and the Senate, both of which the Republicans currently control. Reps in the house serve a two-year term, which means a whopping 435 seats are up for grabs. Senators get a bit more time, and serve staggered six-year terms, so there are only 35 Senate seats going in this round.
So, what could happen in this election?
Old mate Donald is not up for re-election until 2020, so we’ll have to wait two more years for the episode of Keeping up with The Kardashians where the family moves in to the White House (#Kanyeforpresident). Unfortunately for Trump, however, the party of the sitting President (in this case, the Republicans) almost always loses congressional seats in midterm elections.
Right now, it is looking positive for the Democrats to take control of the house of reps. They need to claim at least 23 seats from the Republicans, and it is currently forecasted that there is an 86% chance they will achieve this. On the other hand, the Republicans’ overall senate chances are holding steady. There is currently an 83.7% chance that the Republicans will keep control, as they only need to defend nine seats compared to the Democrats’ 26 seats.
Summary: markets are predicting that the Democrats will take control of the House of Representatives, and the Republicans will hold steady in control of the Senate.
How will this affect the AUD (and Aussie travellers)?
Option 1: Democrats get control of the House of Representatives, but Republicans keep the Senate.
If the Democrats do retake control of the House, a split congress will result. Politically, this would render Trump unable to implement his domestic agenda, perhaps focusing him on foreign trade and policy instead.
Despite currently being in the spotlight for his foreign trade war with China, losing control of the House is not expected to stir the currency markets too much, as the divided Congress should not create major changes to tax, spending or trade policies.
The last time this result occurred was after Obama’s first mid-term in 2010, where he lost control of the house to the Republicans. The week following this result saw the AUD strengthen slightly, circulating around 1.00 - 1.001 against the USD. However, within the next few weeks, the dollar dropped back to around the average of 0.98 against the USD. Should markets play out in a similar way this time around, this result may not pose a major impact for long term buying and selling of the USD.
Option 2: Democrats take the House of Representatives AND the Senate
If the democrats win both chambers, it is possible that the US dollar may trade lower in currency markets.
This would bring increased probability of rising regulation and possibly higher minimum wages in the US. Furthermore, if the democrats control both houses, this could hinder the Republican agenda and create a gridlock that characterised most of Obama’s second term. If this was to occur, it could potentially push the AUD out of its current slump against the USD, giving Aussie travellers a bit more bang for their buck. The last time this happened was in Obama’s second mid-term in 2014. In this instance, the dollar did not act as predicted, and following the midterm, initially fell from an average of 0.87 – 0.88 AUD/USD to 0.86, before rising back to 0.87 within the week following the election.
Option 3: Republicans maintain control of House of Representatives and the Senate.
Finally, under the scenario of the Republicans maintaining control of both houses, the US would see further fiscal stimulus, strengthening the USD against the AUD. For those coming back from the States, this means getting more AUD when you sell back your USD. However, it makes a trip to America slightly harder on the back pocket.
At the end of the day, we can’t predict what is going to happen in the election, or how it will affect the AUD. If you’re planning on heading to the US in the near future, you can prepare and safeguard yourself for all options by signing up for rate alerts and Rate Guard. Rate alerts allow you to sit back and let us do the hard work for you. We will monitor the exchange rates for your preferred currency, letting you know when they reach your preferred threshold.
You can add Rate Guard to your transactions in store for free. If the exchange rate changes within 14 days of purchase, we will refund you the difference. Finally, if you’re coming back from the States with leftover currency and the USD strengthens following the mid-terms, capitalise on the rates and sell your currency back to us at any of our 130+ stores.
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1Prediction data sourced from fivethirtyeight.com