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The US Congress holds midterm elections on Tuesday and the Democrats are hoping to break their grip on the levers of power, according to analysts at Westpac.

Key Quotes

“Markets should be braced for a divided Congress but midterms often produce surprises so global markets and AUD could be whippy around the results on Wednesday (AEDT).”

“While midterms usually garner much less interest than presidential elections there has been a surge in voter turnout in primaries and special elections ahead of November elections.”

“Midterms are typically viewed as a referendum on the president and the current presidency is among the more divisive in an already deeply polarised electorate.”

“Democrats seem set to take control of the US House of Representatives with some pundits calling for a “blue wave”.”

“The USD, US yields and risky assets jumped in the wake of Trump’s 2016 victory in anticipation of tax cuts and infrastructure spending. Any setback for Trump and Republicans at the midterms should thus prompt at least a modest reversal. But, with the exception of an infrastructure program the bulk of President Trump’s pro-growth policies – tax cuts, deregulation, hefty spending increases and pushing out the debt ceiling – has already been implemented. Markets are thus unlikely to be bothered too much if Trump and the Republican party face a midterm rebuke.”