Can Rudd Stop the Rout in the Aussie Dollar?
The swearing in of Kevin Rudd on Thursday for a second time as Australia's prime minister brought some relief to the Aussie dollar, which hit a one-week high on the news.
With Rudd taking over the reins, after toppling Julia Gillard from the Labor Party leadership, just about three months ahead of scheduled elections there is speculation whether he will change the date of the September 14 polls.
(Read More: Rudd Sworn in as Australian PM, Ousts Gillard)
Given this uncertainty, the Reserve Bank of Australia (RBA) is unlikely to cut interest rates in the near-term which could give a boost to the Aussie dollar, which is down more than 10 percent since the start of the year, experts said.
Paul Bloxham, chief Australia and New Zealand economist at HSBC said the timing of an upcoming election could impact the RBA's decision on whether or not to change monetary policy.
"The uncertainty about the timing of the forthcoming election could affect the RBA's willingness to make near term policy moves unless urgently required," Bloxham said in a note. "On the margin, this makes a near-term cut to interest rates a bit less likely."
Australian bank ANZ backed that sentiment, saying the timing of the election date may have implications for future interest rate moves. The election can be called as early as August 3 or could be postponed up until November 30 by Rudd.
"We continue to think that the RBA is likely to steer clear of lowering rates during an election campaign if it is possible," ANZ Research said in a note.
The central bank left its key interest rate unchanged in June after cutting rates by 25 basis points in May to a record low of 2.75 percent, but it has maintained its bias towards easing to boost the economy if needed. The RBA has slashed interest rates by 200 basis points since late 2011 to boost a weak domestic economy.
(Read More: Australia Holds Fire on Rates, but for How Long?)
Eric Viloria, senior currency strategist at Gain Capital Group said even though the Aussie dollar looks "stabilized" since news of the leadership change came, the currency still faces a lot of headwinds like the RBA's easing bias.
"We think it's likely that they're [RBA] probably going to stay on hold, [but] they're probably going to maintain that easing bias and leave the door open for further rate cuts, and while that easing bias is there, that's something that would weigh on the Australian dollar," Viloria told CNBC.
The Australian dollar, meanwhile, has been edging higher - up 1.5 percent since hitting a yearly low of 0.9185 last Thursday. Falling commodity prices, a slowdown in Australia's largest trading partner China and the prospects of tapering of stimulus in the U.S. have weighed on the currency this year, which has been on a bull run from 2009 to the end of last year, rising over 52 percent.
(Read More: Crumbling Aussie - Why Economists Aren't Worried)
According to David Forrester, senior vice president, G-10 forex strategy at Macquarie, the Aussie dollar will continue to be driven by international events, and the political landscape in Australia will have a limited impact on its movements.
- By CNBC.com's Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu