Although risk appetite has been markedly changeable since the UK voted to Brexit, traders are anticipating a prolonged period of safe-haven demand as the global economy faces headwinds including weakness in China and fears of the destabilisation of the European Union. If risk appetite does diminish, the Australian Dollar is likely to weaken versus its most actively traded peers.
GBP AUD Exchange Rate In the Region of 3-Year Low
Despite uncertainty surrounding Australia’s double dissolution federal election, the GBP AUD exchange rate softened considerably last week. The depreciation was mostly the result of the fallout from Brexit as the UK’s opaque economic and political outlook continued to undermine investor confidence.
Additionally, British data started to show the negative effects of the period of uncertainty in the build up to the EU referendum, with post-Brexit business confidence seeing the sharpest drop since 1994.
However, the ‘Aussie’ (AUD) struggled against many of its peers following positive US labour market data. After Change in Non-Farm Payrolls saw a greater-than-expected number of newly employed, 2016 Federal Reserve rate hike odds increased from 12% to 21%.
Whilst the improved bets of a Fed rate hike limited the appeal of the Australian Dollar, the ‘Aussie’ managed to avoid any significant depreciation thanks to firmer global equity markets and commodity prices.
GBP AUD Exchange Rate Trending Narrowly Today
Although risk appetite receded after crude oil prices dropped and pressure eased on the People’s Bank of China (PBoC) to loosen monetary policy further as factory-gate deflation eased for the sixth consecutive month, the GBP AUD exchange rate was trending within a limited range on Monday. However, the ‘Aussie’ did edge lower against a number of its other major peers.
Sterling outlook remains weak amid high expectations of a Bank of England (BoE) benchmark interest rate cut on Thursday.
Meanwhile, demand for the Australian Dollar was undermined as domestic data produced mixed results. Of particular disappointment was May’s Home Loans which unexpectedly declined by -1.0% despite the median market prediction of 2.0% growth.
GBP AUD Exchange Rate Forecast to Hold Losses on Brexit Jitters
The Pound’s outlook is likely to remain negative for some time to come, with many analysts forecasting deeper losses. Considerable Sterling declines are expected if the Bank of England (BoE) does opt to ease policy this week.
The fallout from Brexit will continue to dominate trader focus as British politicians desperately to international business to adopt a more optimistic outlook with regards to investment.
Meanwhile, the Australian Dollar is likely to hold gains versus the Pound but soften against most of its peers with data from China signalling ongoing financial difficulties. Other factors weighing on AUD include the fragility of global economic conditions, shifting Federal Reserve rate hike bets and the prediction that the Reserve Bank of Australia (RBA) will ease policy at its next gathering.
Over the last seven days the GBP AUD exchange rate has been trending within the range of 1.7062 and 1.7674.