LONDON (Sept 15): Sweden's crown hit a two-year low against the dollar and a two-month trough versus the euro on Monday, after voters elected a minority government, which could trigger political uncertainty in Scandinavia's biggest economy.
The crown fell to 7.1499 per dollar, its weakest since June 2012, and last traded 0.3 percent lower at 7.1460. It also softened to 9.2750 per euro in Asian trading, its lowest since early July.
It recovered to trade at 9.23 crowns per euro, with the single currency also struggling given the European Central Bank's ultra-loose monetary policy.
Sweden's centre-left Social Democrats emerged as victors in the election but fell short of a parliamentary majority, while the anti-immigrant far right emerged as the third-biggest party to hold the balance of power.
"The post-election uncertainty and a potential for protracted negotiations about a new government is an obstacle to the Swedish crown's near-term fortunes," said Petr Krpata, currency strategist at ING.
"This may add to expectations that Riksbank is unlikely to change its dovish bias any time soon," he added in a note.
Given the uncertainty over decision-making, especially in fiscal policy, investors will price in some political risk premium, analysts said. But most of the crown's losses were likely to be against the buoyant dollar, rather than euro.
"There is a risk for euro/Swedish crown to go up, but that upside is very small," said Niels Christensen, FX strategist at Nordea Bank. "Dollar/Swedish crown on the other hand is likely to rise further and we are bullish dollar across the board."
The Australian dollar slid to a six-month low on worries about slower Chinese growth. Investors took aim at the Aussie, often used as a proxy for China plays, after data showed factory output in Asia's economic powerhouse grew at the weakest pace in nearly six years in August. Growth in other key sectors also cooled.
The Aussie fell below 90 U.S. cents for the first time since March 20 to trade at $0.8984, before recovering slightly to $0.9015. It has tumbled four cents in the past week.
"The performance of the Aussie unsurprisingly matches up, given its exposure to China risks," Morgan Stanley said in a morning note. "If the People's Bank of China is unable to come in and provide adequate easing, the Aussie could come under further pressure."
Part of the Aussie's drop has also been because of a rise in the U.S. dollar, which has rallied in recent weeks as markets bring forward the risk of a rate hike by the Federal Reserve as data continues to suggest a sturdy U.S. recovery.
As a result, U.S. Treasury yields have risen, boosting the appeal of the greenback. Just last week, the benchmark 10-year yield posted its biggest weekly rise in over a year.
The Fed holds its next policy review on Sept. 16-17.
Sterling remained on the defensive before the Sept. 18 referendum on independence for Scotland, with polls showing the "Yes" and "No" camps pretty much neck-and-neck. A win for the "Yes" campaign could end the 307-year-old union with England and lead to the break-up of the United Kingdom.
The pound was softer at $1.6245 and remained vulnerable, after last week's drop to a 10-month low of $1.6052.