What are the implications for Aussie investors? Uncertainties over the virus ‘second wave’, a potential vaccine, fiscal stimulus and the US election outcome are likely to introduce bouts of extreme volatility to financial markets over the coming months. Australia’s economic outlook is largely dependent on Melbourne successfully emerging from its second lockdown, despite remaining captive to overseas developments. Interestingly, a measure of 180-day correlation between Australia’s S&P/ASX 200 and the US S&P 500 indexes has eased since hitting highs of 0.7178 on March 18. Australia’s recently announced government stimulus measures and relatively higher yielding assets may contribute to an even further decoupling from its US peer. Aussie investors are in for a big couple of days in early November. Commonwealth Bank (CBA) Group economists expect the Reserve Bank to lower the cash rate target, term funding facility rate and three-year bond yield target to 0.10 per cent as well as potentially announcing purchases of longer-dated bonds on Melbourne Cup Day (November 3). Then everyone will be fixated on their screens on Wednesday November 4 as the US election results trickle through. CBA Group currency strategists have assessed a range of scenarios for the Aussie dollar against the greenback based on the 2020 US election result, as follows: If former Vice-President Joe Biden’s 9 point poll lead holds through to November 3, President Trump will need to produce the biggest comeback since World War II to overturn the deficit. According to Deutsche Bank, the largest polling error occurred in 1948 when President Truman won by 5 points despite being behind by 4.4 points in the final pre-election polls. But rather than focusing on the election outcome, Aussie investors should assess whether their existing investment allocations still align with their current set of personal circumstances and speak to their financial advisors. Ryan Felsman, Senior Economist,Commsec
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