While the GBP/AUD exchange rate tumbled over the course of last week, the Pound was able to claw back losses against the Australian Dollar today as risk appetite declined. The recent dovishness of the RBA also weighed on AUD exchange rates.
Pound Sterling Recovers from Political Losses
Last week much of the movement in the GBP/AUD exchange rate occurred in response to the Conservative Party Conference – which didn’t go quite as planned.
Following a messy speech from UK Prime Minister Theresa May and defiant behaviour from UK Foreign Secretary Boris Johnson, markets became increasingly anxious that May’s time as leader could be running out.
With Brexit negotiations proving slow, fresh political uncertainty is the last thing Britain needs. Concerns that May could be ousted or face a leadership challenge have made the Pound highly unappealing and were one of the main causes of GBP exchange rate losses last week.
The Pound’s performance wasn’t improved by less-than-impressive UK construction and manufacturing PMI reports.
However, a show of strength from Theresa May helped calm immediate leadership concerns and resulted in an over 1% gain for GBP/AUD on Monday.
Australian Dollar Undermined by Reserve Bank of Australia Caution
While the Pound spent Monday recovering, the Australian Dollar was struggling in response to monetary policy speculation.
Hopes that the Reserve Bank of Australia (RBA) could take a more hawkish stance on monetary policy in the foreseeable future continue to be dashed by comments from bank officials.
On Friday, RBA policymaker Ian Harper expressed concern at how slow Australia’s economic recovery had been and indicated that the bank was not likely to tighten monetary policy in the foreseeable future.
Harper also refused to rule out the possibility of an interest rate cut from the RBA, the possibility of which concerned traders and left the ‘Aussie’ unappealing.
This, as well as rising bets that the Federal Reserve will hike US interest rates a third time in 2017, has limited AUD strength.
GBP/AUD Forecast: Australian Confidence Data in Focus
If Australian data impresses in the coming days, GBP/AUD could fall again. While the Pound recovered from its lows on Monday, the currency’s gains may prove fleeting due to a lack of optimistic UK news.
The most notable Australian data to keep an eye on will be NAB’s September business confidence survey and Westpac’s October consumer confidence survey, due Tuesday and Wednesday respectively.
A speech from Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle on Tuesday could also inspire Australian Dollar movement. If Debelle takes a dovish stance, GBP/AUD could continue its recovery.
Britain’s upcoming economic calendar isn’t too busy, but Tuesday’s August trade balance, industrial production and manufacturing production data could influence GBP sentiment.
Political developments are more likely to impact the Pound. If perceived tensions in the Conservative Party cool, the Pound is likely to see calmer trading, but any indications that a Conservative leadership challenge is becoming more likely would cause Sterling to remain weak.