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Aust dollar drops amid political turmoil

The Australian dollar has fallen sharply on Thursday morning, amid growing political uncertainty after several senior ministers resigned their posts, putting Prime Minister Malcolm Turnbull's leadership in deep jeopardy.

The Aussie was trading at 72.88 US cents at 1230 AEST, down from 73.42 US cents on Wednesday.

The fall coincides with strength in the US dollar however JP Morgan head of fixed income strategy Sally Auld said the Aussie is also underperforming against other currencies.

"That would tell you that there's some specific story (with the Australian dollar)," Ms Auld said

The country's parliament was adjourned on Thursday to allow for a meeting of the ruling Liberal party, with former home affairs minister Peter Dutton and Treasurer Scott Morrison seen as likely contenders for leadership.

Australia has been a revolving door of prime ministers since 2007 with no single leader completing a full three-year term since.

The Aussie typically tends to ignore politics as commodity prices and yield differentials remain its key drivers, irrespective of who is in power.

But this time feels different, said Sean Callow, currency strategist at Westpac.

"Since the Liberal leadership spill on Tuesday, the AUD is easily the weakest G-10 (Group of 10 nations) currency - despite strong Q2 construction data on Wednesday - which suggests that this is a rare instance of the Aussie carrying a small political risk premium," he said.

Wednesday's data showed spending on construction work jumped 1.6 per cent in the second quarter, double market forecasts.

Home building was particularly strong and promised to make a solid contribution to economic activity in the quarter.

Australian government bond futures gained, with the three-year bond contract up 2 ticks at 97.985. The 10-year contract climbed 2 ticks to 97.480.

Austrlaian Associated PressBack to Breaking News

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