After advancing for much of last week the GBP/AUD exchange rate got stuck on a downtrend on Friday. As the 2017 UK general election nears, traders are becoming uncertain about the potential result and the Pound is losing out to the high-yielding ‘Aussie’. The interbank GBP/AUD exchange rate had fallen from 1.73 to 1.72 at the time of writing.
Pound (GBP) Jittery as UK Election Approaches
Sterling volatility is likely to persist in the days ahead as investors react to news that the UK general election may be much tighter than previously expected.
Analysts and polling pundits had previously projected that the Conservative party would win a big majority in the election on the 8th of June and improve the party’s parliamentary mandate.
However, in recent weeks UK Prime Minister Theresa May’s popularity has dropped and the opposition Labour party has seen a big increase in support.
Labour continued closing the gap on the Tories on Monday. While the Conservatives still have a lead in almost every poll, they are within the margin of error for loss in some polls and analysts have been increasingly concerned about the possibility of a ‘hung parliament’.
With a ‘hung parliament’ (an election in which no party wins an outright majority) looking more and more possible, the Pound is unlikely to appeal to many investors this week.
High-Yielding Australian Dollar (AUD) Rises
Despite a lack of notably strong data from Australia in recent weeks and market jitters about Tuesday’s Reserve Bank of Australia (RBA) meeting, the Australian Dollar has seen stronger demand since Friday.
First of all, Friday’s underwhelming US Non-Farm Payroll results as well as UK general election jitters made investors hungrier for high-yielding currencies like the ‘Aussie’.
Secondly, solid service sector data from China, Australia’s biggest trade partner, also boosted AUD’s appeal. According to Caixin’s services PMI, China’s services sector improved from 51.5 to 52.8 in May.
This offset some disappointment about AiG’s latest Australian services PMI, which had dropped from 53 to 51.5.
GBP/AUD Forecast: RBA and UK Election in Focus
This is set to be a big week for the Pound to Australian Dollar exchange rate with a vital political event in Britain and a slew of key Australian economic news due throughout the week.
Tuesday’s Asian session will see the Reserve Bank of Australia (RBA) hold its June policy decision. While no change to monetary policy is expected, the ‘Aussie’ will react to any shifts in tone from the bank’s officials.
If the RBA ramps up warnings about Australia’s job and housing markets, the Australian Dollar is likely to weaken. On the other hand, indications that Australia’s economy is becoming sturdier will bolster bets of tighter monetary policy in the foreseeable future and the ‘Aussie’ will strengthen.
Wednesday’s Australian data includes construction figures from AiG and more importantly Q1 Gross Domestic Product (GDP) results for the nation. If these beat expectations, AUD exchange rates could climb.
Thursday will see the publication of Australia’s April trade surplus, but the UK 2017 general election will dominate market focus on Thursday and could lead to big GBP/AUD movements on Friday.