Obama win may be marginally better for U.S. dollar

NEW YORK (Reuters) - Less than a month to go before the presidential election, U.S. dollar investors are still debating which candidate will be better for the greenback though based on historical performance a Democrat win may bode slightly better in the near term.

Amidst the worst financial and economic crisis since the Great Depression and the U.S. presidential election set for Tuesday, November 4, the policies of Republican candidate Senator John McCain and Democrat Senator Barack Obama are being closely scrutinized.

Yet in the end, the question of who will do better for the dollar may come down to the fact that the Democrats already control Congress which may make it easier for an Obama administration to push through his policies.

Either "McCain or Obama will have a tough time dealing with the economy when he becomes President, but having a President that is supported by his party's majority in Congress will certainly make it easier to pass stimulative measures," said Kathy Lien, director of currency research at GFT Forex.

A stronger U.S. economy will increase demand for U.S. assets and the demand for dollars to buy them.

There is also the historical precedent that Democrat presidencies have just been better for the economy.

From 1953 to 2006, average real GDP growth was 4.2 percent under Democrats and 2.8 percent under Republicans, said Benedikt Germanier, chief currency strategist in the U.S. at UBS AG in Stamford, Connecticut.

Stock prices have also tended to perform better under Democrats. Since 1900, the Dow Industrials have climbed 13.3 percent annually under Democrats versus just 7.1 percent under Republicans, Germanier said.

A Reuters/C-SPAN/Zogby poll of likely voters released on Wednesday showed Obama with a 47 percent to 45 percent edge on McCain, down one point overnight and within the poll's margin of error of 2.8 percentage points.

Other analysts though, say that historical precedent is not enough.

The Democratic Party is seen as more likely to raise taxes on capital gains and the investor class, which would be detrimental to the U.S. stock market and reduce demand for the dollars to buy stocks.

Though not inherently good for the dollar, on that basis a McCain victory will at least be less bad, said Ashraf Laidi, chief currency strategist at CMC Markets in New York.

MCCAIN'S FOREIGN POLICY

But a McCain victory may also see a more aggressive U.S. foreign policy against such places as Iran and Russia which would roil oil and commodity markets, exacerbating economic problems and creating become negative for the dollar.

That contrasts with expectations for Obama who is more likely to negotiate, easing geopolitical tensions and calming markets.

Laidi though, said given the current state of the U.S. economy neither candidate is going to have an easy time.

Neither the Democrats or Republicans are "expected to reduce the swelling fiscal (budget) deficit which is expected to reach $800 billion in 2010, allowing for the dollar's structural deficiencies to resurface," said Ashraf Laidi, chief FX strategist at CMC Markets in New York.

Congress this month approved a $700 billion bailout for the financial services industry which empowers the U.S. Treasury Department to buy mortgage-backed securities and allow credit markets to operate.

A bigger question for Laidi is who will be Treasury Secretary.

"That will open new analysis and speculation," said Laidi.

If current Treasury Secretary Henry Paulson were asked to stay on. "It would be comforting to the market to have continuity," Laidi said.

Asked about a possible Treasury secretary in their administrations during a recent debate, both candidates mentioned Omaha's legendary investor Warren Buffett, a supporter of Obama.

The dollar's fortunes of course, are not solely reliant on U.S. policy and its strength at least against the euro, could also be dictated by how the European banking crisis plays out.

"If they can contain their crisis without compromising broader macroeconomic objectives of growth and low inflation, then the euro will be stronger," said Gregory Hess, Professor of Economics at Claremont McKenna College in Claremont, California.

And perhaps the dollar's direction, will still be dictated more by short term events. The ICE Futures Exchange dollar index has already gained almost 13 percent since it's trough in March ended a seven year decline even as the current financial crisis unfolded.

"Neither (candidate) will change the basic structure of heavy imports of Asian products, heavy import of commodities and relatively low interest rates," said George Friedman is founder and CEO of Stratfor, and Austin, Texas-based intelligence and analysis company. "Neither candidate has a plan to deal with the dollar."

(Reporting by Nick Olivari)