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The US election outcome may not have delivered a blue wave but the overall macro picture favouring risky assets, USD weakness and low global yields remain intact. The AUD/USD pair is set to test the 0.74 resistance under a Biden presidency, economists at Westpac inform.

Key quotes

“A Biden presidency still implies some fiscal support, with monetary policy likely to pick up any slack. Global liquidity conditions will remain supportive regardless. Challenges to the election result in coming weeks appear to have weak legal foundations and are unlikely to upset markets.”

“Further DXY weakness seems likely, albeit not as pronounced as assumed under a blue wave outcome. Biden’s freer hand on the global front under divided government leaves a relatively more bullish outlook for emerging market currencies intact too, notably those most impacted by trade wars such as CNY. AUD is likely to test resistance within its recent 0.70-0.74 range.”

“There are some obvious USD negative impulses coming out of a Biden administration and a divided US Congress. US-China relations are likely to conducted in a less confrontational manner, further escalation of trade tensions with traditional allies is off the table and the tech and banking sectors have likely avoided the worst of a more intrusive regulatory landscape, all of which is very good news for risk appetite.”

“There will still be pressure for coronavirus relief and markets will be eyeing prospects for compromise deals, but Democrats’ underwhelming performance in Congress mean that hopes for $2trn+ in immediate covid aid and a sustained medium-term fiscal push built around Biden’s four year $3-4trn Build Back Better plan need to be sharply scaled back. A potential razor-thin majority if Democrats win back the Senate in early January will alter the calculus in favour of more stimulus, but not materially. A more targeted Covid relief bill in the range of $1-1.5trn seems more plausible now.”