U.S. Election Uncertainty Weighs on ASX: How a Trump or Harris Win Could Shift Australian Markets

Key Highlights:

• ASX futures signal a cautious start as U.S. election tightens and the RBA’s rate decision looms.
• A Trump victory could strengthen the dollar, raising volatility in ASX trade-sensitive sectors.
• Harris’s policies may offer stability, with potential benefits for Australian commodity exports through a weaker dollar.

U.S. Election Uncertainty Weighs on ASX: How a Trump or Harris Win Could Shift Australian Markets

With the U.S. Presidential election in its final stretch, ASX markets are preparing for potential shake-ups. Today, ASX futures indicate a slight dip of 0.47%, a signal of investor caution as they await both the U.S. election result and an impending rate decision from the Reserve Bank of Australia. The outcome of this closely contested election is likely to ripple across global markets, and for ASX investors, each candidate’s policies could bring distinct challenges and opportunities.

Stocks Brace for Volatility with U.S. Election on Edge

The election’s outcome is expected to influence key ASX sectors, especially those sensitive to global trade and currency shifts. A Trump victory may drive a stronger U.S. dollar, which typically brings mixed impacts for Australian exports. "If Trump wins, we could see heightened volatility in trade-exposed sectors like resources and finance," analysts from FXEmpire noted. Meanwhile, tech and healthcare stocks, less vulnerable to currency swings, could see early gains.

If Harris wins, her administration is expected to follow a steadier economic path, potentially weakening the dollar. A weaker dollar could benefit Australian commodity sectors, as the increased demand for resources typically supports prices. "A Harris administration may mean a softer dollar, which could be a tailwind for Australia’s mining and energy stocks," said JDR News.

How Gold and Bonds React Post-Election

Gold’s status as a safe haven asset means it usually rises on election uncertainty but dips once results settle. Historically, gold prices tend to fall by 0.4% in the week after U.S. elections, according to data from Citi. "The knock-on impact of this election could be a temporary dip in gold, but investors should view this as a potential buying opportunity," Citi analysts suggested. They have set a six-month target for gold at $3,000/oz, with support from broader economic trends such as high global debt and inflationary concerns.

Bond yields, meanwhile, could experience near-term fluctuations but tend to rise over the months following an election. The 10-year U.S. Treasury bond typically gains as markets recalibrate after election day, with yields reflecting growth-related policies. For the ASX, these bond movements may translate to impacts on Australian financial stocks, particularly if global yields influence the RBA’s policy outlook.

Election Impact on ASX Currency and Trade Dynamics

In the currency market, the dollar-yen pair remains a focal point for investors, and shifts in this pair could have spillover effects for the ASX. A Trump-led dollar rally may push the USD/JPY rate higher, likely impacting Australian exporters with trade ties in the U.S. and Japan. "If Trump wins, dollar-yen may test above 155, with Japanese authorities likely to monitor closely for intervention," according to Nomura’s head of foreign exchange, Yujiro Goto.

A Harris win, however, might see a softer dollar, with predictions for USD/JPY easing toward the 150 level. This could work in Australia’s favor, particularly in resource sectors, where a weaker dollar often enhances commodity demand globally.

Bonds and Stocks: What the Data Says

For stocks, the historical data shows that U.S. elections tend to spark a rally in equity markets as uncertainty fades. The S&P 500 has typically delivered post-election gains, with an average increase of 11.3% in the year following an election, per Citi Research. "Post-election stability usually drives equities higher, a pattern we may see across ASX stocks, especially in growth sectors," Citi analysts noted. ASX’s tech and healthcare sectors are already reflecting positive sentiment, signaling early investor adjustments.

In contrast, the reaction in bonds is usually more reserved but tends toward growth. The 10-year U.S. Treasury bond yield has shown volatility immediately after election day but typically rises within three to twelve months. This trend may impact the RBA’s stance, particularly if U.S. growth expectations shift in response to election-driven fiscal policy changes.

Investor Takeaway: Navigating ASX Amid Election Uncertainty

For ASX investors, the 2024 U.S. election presents both potential risks and opportunities. A Trump victory could strengthen the dollar and boost ASX resource stocks in the short term, but trade policy changes could pose risks for exporters. A Harris win, while potentially softer on the dollar, might stabilize global trade relations, offering ASX investors a more predictable policy environment.

As the election unfolds, investors should remain cautious but also stay alert to opportunities, particularly in commodities and gold if the market sees temporary dips. While volatility may dominate in the short term, the data suggests that both equities and bonds could be set for positive performances as markets adjust to post-election clarity.