The Australian dollar faces additional volatility in coming days after the country’s Foreign Minister Kevin Rudd resigned following weeks of speculation over a possible leadership challenge to Prime Minister Julia Gillard.
In the hour after the announcement by Mr. Rudd, who was in Washington, the Australian dollar nudged higher from around US$1.0650 to US$1.0672.
Greg Gibbs, senior currency strategist at RBS, said Mr. Rudd’s move will add to speculation that Ms. Gillard will be challenged soon.
“This may add some additional volatility in the Australian dollar,” Mr. Gibbs said.
John Horner, currency strategist at Deutsche Bank, said he had received queries from traders just starting their day in London and from Asia about the ramifications of Mr. Rudd’s decision.
“We are seeing a few questions come through, but given the lack of marked policy difference (between Gillard and Rudd) the markets seem relatively unchanged after these events,” he said.
Speaking from Tokyo, Su-Lin Ong, senior economist at RBC Capital Markets, said the issue of the leadership tussle “was definitely on the radar of global investors.”
She said she had been inundated all day with questions about the political instability in Australia in client meetings. While there are bigger issue in play for the currency, the uncertainty represents a negative for the Australian dollar.
By going to the backbench, Mr. Rudd has a much better chance of doing what is needed to shore up his support within the caucus, she said.
Early Wednesday evening in Sydney, the Australian dollar was trading US$1.0674.
Ms. Gillard leads an unpopular minority Labor government, which she took charge of after staging a revolt against Mr. Rudd in mid-2010 when he was prime minister. With an election due by late 2013, polling shows Labor has a lot of work to do to avoid a convincing defeat.
Ms. Gillard said earlier this week that she was confident she had the support of her parliamentary colleagues, who will ultimately decide who occupies the country’s top job.
