NEW YORK ( TheStreet) -- As Australia's new Prime Minister gets settled into office, investors may be wondering what it could mean for the mining tax and ETFs such as iShares MSCI Australia Index Fund ( EWA) and CurrencyShares Australia Dollar Trust ( FXA) .On the mind of many is what will become of the already unpopular mining tax that was supported by the previous Prime Minister. Labor Prime Minister Kevin Rudd was already leading an unpopular government, but with elections coming up, the mining tax fiasco led to his resignation and replacement by Julia Gillard. The mining tax is designed to increase the percentage of profits that the government can take from mines operating within Australia. Many of Australia's large companies have significant operations abroad, but the income they draw from domestic mines would be reduced by the tax. Also, foreign companies that invest in Australia would also have to pay the larger tax on their operations with the country. Some worry that this will decrease enthusiasm for exploring and investing in Australian mines and that multinational companies, including Australian firms, will look to break ground elsewhere. Recently, China's largest manufacturer of Aluminum, Chalco, terminated a $2.5 billion mining deal in Australia, and although the mining tax was not mentioned as a reason, it could have been one factor making the project less financially viable. It is these sorts of projects and contracts brought in by foreign companies that Australia's mining sector is concerned will be discouraged by the tax. A deal is expected to be reached soon, with an announcement expected tomorrow. According to reports, the large miners have been in negotiations with the government, while the smaller miners have been excluded. A weakened mining tax, especially one negotiated by the large miners, would be good for iShares MSCI Australia ( EWA) because it is heavy in large cap mining companies. The number one holding in the fund is miner BHP Billiton ( BHP), which accounts for 14.7% of net assets. Rio Tinto ( RTP) is a top 10 holding in the fund and accounts for 3.3% of net assets. With elections on the horizon and the new Prime Minister enjoying a bounce in the polls, she does not want to go the way of the old one and will likely agree to a less severe tax. The announcement of the tax damaged the shares of miners and EWA, and shares have suffered again during the most recent decline in global markets. Therefore, a positive announcement could lead to a nice bounce tomorrow and in the ensuing days.
On the currency side, investors looking at foreign exchange rates may have noted how political change in the United Kingdom affected the performance of the pound against the U.S. dollar in the days before and after the general election in May. Similarly, a new Prime Minister in Australia may affect the value of the currency against the U.S. dollar, though elections haven't been called yet. So far though, no politically driven move has been seen in the Australian dollar's movements against the U.S. dollar, aside from a stiff drop in the value of the currency at the start of this week that was more related to risk aversion as opposed to domestic politics. For now, investors interested in Australia should watch the commodities prices and mining tax for direction on EWA and FXA. However, with Labor enjoying a bounce thanks to the selection of a new prime minister, elections may be called sooner rather than later.