The Australian dollar was lower Thursday after Prime Minister Julia Gillard called a leadership ballot in an effort to end months of building tension within the Labor government over who will lead it into the 2013 election.

“We need a leadership ballot to settle this question once and for all,” Ms. Gillard told reporters in Adelaide.

Currency traders said the financial markets had been ignoring the political upheavals of the last few days until Ms. Gillard announced the vote.

“It’s the uncertainty,” said David Scutt, currency trader at Arab Bank. “Anyone want to do business in Australia?,” he added.

The currency slid to around US$1.0616 from around US$1.0635 where it traded in the 30 minutes before Ms. Gillard’s press conference. At 11:30am local time, the Australian dollar was trading at US$1.0622.

The call to resolve the question of the Labor leadership follows a week of rising tension that culminated Wednesday in the resignation of Foreign Minister Kevin Rudd.

Mr. Rudd, who was in Washington at the time, said he will return to Australia Friday to assess his options.

Ms. Gillard expects Mr. Rudd, who she ousted from the country’s top job in mid-2010, to nominate for the leadership next week.

Ms. Gillard presides over an unpopular minority government that would be swept from office if an election were held today, according to recent national polls.

“Everyone is sick of the ridiculous politics going on. Even the Australian dollar, losing some ground…seems sick of the uncertainty it is creating in the domestic market,” said Kara Ordway, a currency strategist at City Index.

“The Australian dollar, without the saga that is Julia and Kevin, has lost momentum over the past couple of days,” she added.

Arab Bank’s Mr. Scutt said the acrimonious battle for the leadership risked the possible resignation from parliament of Mr. Rudd if he loses the vote on Monday. Such an outcome would threaten Labor’s tenuous grip on power, which is supported by a handful of independents and the Greens party.

Mr. Rudd was subjected to a stinging attack Wednesday with Treasurer Wayne Swan calling him dysfunctional.

“The Party has given Kevin Rudd all the opportunities in the world and he wasted them with his dysfunctional decision making and his deeply demeaning attitude towards other people including our caucus colleagues,” Mr. Swan said.

Earlier Thursday, Mr. Swan canceled his planned trip to the Group of 20 meetings in Mexico ahead of Monday’s vote.

Sean Callow, currency strategist at Westpac, said the focus now is on the ballot, adding that if the result isn’t decisive, it may fuel greater uncertainty for currency markets.

The Australian dollar “could well get a good size reaction on Monday if the vote is close,” he said.