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

By Nick Olivari - Analysis

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.