How the Election Will Move Currencies

President Barack Obama and Mitt Romney
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President Barack Obama and Mitt Romney

Polls suggest a Romney win would be the bigger surprise, this pro says, and the dollar would feel the effects.

Got your polling place set? Those of us in the northeast have had ours move around a bit, thanks to Superstorm Sandy, but at least this seemingly endless election is almost over.

Steven Englander, global head of G10 FX strategy at Citigroup, has looked at what the possible outcomes would mean for the dollar, and he says that at this point, "you have to see an Obama win having modest impact on asset markets and a Romney win being the big surprise."

An Obama victory, Englander says, would mean the following: "Overall probably negative for the USD, although the immediate effect should not be large. In the first instance the main winner is CAD; JPY also in play given positioning and rate sensitivity. Other winners AUD, NZD, NOK as QE-continuity trades. SEK may lag given its equity link."

A win by Romney would be quite different, in Englander's view. "Romney win is really not priced in. In the first instance we think the reaction will be concern that he will tighten on the macro side prematurely and lead to a broad sell-off in equities and fixed income, and buying of USD, but we think he will quickly back-off from the Ultra-view of where policy is headed. So if Romney backs off from immediate macro tightening and fiscal cliff is put off, equities could come back, as well as risk-appetite in coming weeks."

With the polls so close, there is also the possibility that the election will not be decided on November 6. In that case, Englander says," it would probably be viewed as raising the odds of a Romney win, or at least raising uncertainty. On that basis, we would lean to initial concern that we would see austerity both on the fiscal and monetary side." And that, he says, would curb risk appetite.

Stay tuned.


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