For the first time in 70 years, the Australian Federal election has failed to deliver a majority party in the country's lower house of parliament. The election was held on Saturday, August 21^st and was the closest race in decades.

The race eventually finished with no clear majority party in power, resulting in a so-called hung parliament. The last time there was a federal hung parliament in Australia was in 1940.

Election Results

Voters gave minority support to Tony Abbott's Liberal National Party coalition, giving them the popular vote with 21 Parliamentary seats in Saturday's election.

This left Julia Gillard's former ruling Australian Labor Party with the largest set of 70 seats. The second largest set of parliamentary seats went to the Liberal Party with 43 seats.

In addition, the Green party won one seat, the Nationals got seven seats, the CLP or Territory Party won one seat, two seats went to independents and five seats remained "doubtful".

Initial Reaction of the Aussie in the Currency Markets

The Aussie initially fell against all of the major currencies as the results of the election were released indicating a hung parliament. The rate reached as low as 0.8857 in late Australian trading.

Furthermore, Australian bond yields fell after the news, although mining stocks such as BHP Billiton Ltd. and Rio Tinto gained on the increased prospects of a controversial proposed mining tax being scrapped.

Aussie Recovers in a Delayed Reaction

Nevertheless, while the initial reaction to the elections was a falling Australian Dollar, the Aussie has since managed to recover some ground in early trading in Europe and the United States.

Also, the hung parliament may well have been factored into the market on Thursday and Friday when the AUDUSD rate traded significantly lower.

Perhaps as a result, AUDUSD has now recovered to trade at 0.8914. This is up somewhat from the low level of 0.8840 that was seen last Friday before the election results were announced.

The Continuing Case for the Aussie

The political uncertainty resulting from a hung parliament can often adversely affect and weigh upon the value of a country's currency, and this can certainly impact a currency like the Aussie.

Nevertheless, buoyant Australian fundamentals - as well as firm commodity prices and a high rate of interest in Australia - continue making a case in favor of the Aussie versus other countries with poorer economic prospects.

The fact that the initial reaction to news of the election was an initial sharp decrease in the value of the Australian Dollar - only to see the market subsequently recover and take the rate higher - tends to indicate that the Australian Dollar could well continue heading upwards even in spite of this new political uncertainty in Australia.