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BRACING for a week of uncertainty, local markets are expected to drift down today, while investors hope for a swift resolution to Australia's hung Parliament.

The political turmoil is all the more unwelcome amid fears of a double-dip recession in the US following the release of poor economic data there last week.

The Australian dollar is expected to lose about US1 today and lower trading volumes are predicted for this week as everyone waits to learn who will form government.

Mining companies and Telstra will be particularly keen for certainty on the major policy issues that affect them.

The caretaker Prime Minister, Julia Gillard, yesterday moved to reassure financial markets of the stability of the political landscape, saying ''government continues''.

The auction of $1.2 billion worth of Australian government bonds this week will be a critical test of investor confidence.

The first tranche of the sale by the Australian Office of Financial Management will be $500 million of 10-year bonds on Wednesday. A further $700 million of three-year bonds will be put up for tender on Friday.

Phillip Bailey, a fixed income specialist with ADCM Services said debt markets were bracing for a sell-off. "We don't have a clear cut outcome. We effectively have a hung Parliament and that creates uncertainty - which is just the thing markets don't like," Mr Bailey said.

Cameron Peacock, a market analyst with IG Markets, said investors could think twice about the bonds.

''I don't know if people will want to take up the issuance if they're not sure who's actually going to be issuing it at the end of the day,'' he said.

Mr Peacock also said that while markets hated uncertainty, he did not believe this week would differ greatly from the election campaign, and that the poor US data was a bigger weight on the market.

He said the hung Parliament was a surprise for the market, which had priced in a Labor victory.

''The miners, particularly, had factored in that they were going to get a mining tax under a Gillard government.

''If the Coalition had got in I think you would have seen a bit of a bounce in some of the mining stocks and maybe some money flowing back into the market from foreign investors,'' he said.

Australian Chamber of Commerce and Industry chief executive Peter Anderson urged people not to put economic or investment decisions on hold.

''A caretaker period in national politics does not put the economy on hold. Australians need not see the tightness of political combat as anything but an expression of a working democracy,'' he said.

For many, the distinguishing features between the two major parties are Labor's plans to introduce a mining tax and create a $43 billion broadband network. The Coalition has promised no mining tax and a slower, $6 billion broadband network.

UBS chief economist Scott Haslem said he expected some compromise in these areas as both parties court the support of rural independents.

''One party might have to move away from a mining tax to secure independent support, another party might have to do more on rural broadband in order to secure a minority government,'' he said.

''Both have campaigned on fairly fiscal conservative platforms, both are targeting a balanced budget over the next few years, both have reaffirmed the Reserve Bank's independence, neither party is likely to price carbon in the next three years, so there's not actually a lot of macro-economic difference between these two parties, they're both relatively central and conservative.''

With ERIC JOHNSTON and AAP