Pound to Australian Dollar Exchange Rate Edges Higher on Global Trade Developments
UPDATE: While news that causes risk-on movement typically benefits riskier currencies like the Australian Dollar (AUD), Sterling (GBP) appeared to benefit more from the latest trade developments than the ‘Aussie’.
The biggest news on Monday was market reaction to a new US-Mexico trade deal, which weakened the US Dollar (USD) and benefitted riskier currencies and US Dollar rivals.
The cheap Pound was more appealing than the Australian Dollar, so GBP/AUD edged higher within the interbank region of A$1.75 on Tuesday.
Pound to Australian Dollar Exchange Rate Edges Higher Despite Fresh ‘No-Deal’ Brexit Fears
Broad weakness in the Australian Dollar (AUD) on political news helped the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate to climb last week. Despite prevalent Brexit uncertainties, GBP/AUD could be in for further gains this week.
Due to political turbulence in Australia, GBP/AUD jumped from the interbank level of A$1.74 to A$1.75 last week – but was unable to hold Friday’s fortnight high of A$1.76.
At the time of writing on Tuesday, GBP/AUD was trending just above the week’s opening levels as investors hesitated to buy back into the Australian Dollar too much.
Both currencies are being pressured by political uncertainties. The Pound’s (GBP) strength is limited by concerns of a possible ‘no-deal’ Brexit, while Australian Dollar investors are anxious about the stability of the Australian government following the change of prime minister.
Pound (GBP) Exchange Rates Struggle to Find Support as ‘No Deal’ Brexit Speculation Persists
The Pound’s (GBP) outlook is unlikely to see much change this week, as the British currency continues to feel the pressure from concerns of a possible ‘no deal’ Brexit as it has for most of August.
Investors are hesitant to buy Sterling, as the possibility that the UK could crash out of the EU without any kind of deal at all is perceived to have risen.
While some analysts suggest Sterling has been oversold and the chances of a deal being made are still higher than a ‘no deal’ Brexit, any comments from officials acknowledging ‘no deal’ as a realistic outcome have made investors panic.
This week so far, UK Prime Minister Theresa May has argued that Britain would brush off a ‘no-deal’ Brexit, and stated she still believed that no deal was better than a bad deal.
Investors are also anxious about news that the French Prime Minister, Edouard Philippe, had asked his ministers to prepare a contingency plan for the possibility of that a ‘no-deal’ Brexit becomes reality.
Australian Dollar (AUD) Exchange Rate Strength Limited despite Higher Risk-Sentiment
While the Pound’s (GBP) gains against the Australian Dollar (AUD) were limited, the weak Australian Dollar was incapable of capitalising on Sterling’s Brexit-induced weakness.
Last week, the Australian Dollar suffered a sharp selloff as Australia’s now ex-Prime Minister, Malcolm Turnbull, faced leadership challenges that left Australian political uncertainties dominating market movement.
When Australia’s new Prime Minister, Scott Morrison, won a leadership challenge on Friday, investors bought the ‘Aussie’ back slightly from its worst levels
However, there is still much instability and division perceived in Australia’s ruling coalition government, which has left investors uncertain about the strength of the government going into next year’s elections.
Some analysts predict that if instability within the coalition worsens again, Australia could even see early elections. As a result, investors have been hesitant to go long on the relatively risky Australian Dollar.
This was despite the stronger risk-on mood in markets this week so far. Investors have been happier to take on higher risk since the US announced a new trade deal with Mexico.
Pound to Australian Dollar (GBP/AUD) Forecast: Political Developments Could Remain in Focus
The Pound to Australian Dollar (GBP/AUD) exchange rate is unlikely to see a significant shift in demand this week, unless there are notable relevant political developments.
This could be anything from a change in the Brexit negotiations, or signs of stability within Australia’s government, to US political news which may impact risk-sentiment and the relatively risky ‘Aussie’.
This week’s Australian economic calendar has some notable stats on it, so the Australian Dollar (AUD) may be more likely to be driven by data than the Pound (GBP).
Wednesday will see the publication of Australia’s new home sales stats from July, with building permits from the same month due for publication on Thursday.
Australia’s Q2 private consumption expenditure and July private sector credit figures may also influence AUD towards the end of the week, while the week’s only notable UK data will be Friday’s August consumer confidence survey.
Overall, the Pound to Australian Dollar (GBP/AUD) exchange rate could see a further recovery this week if Australian political jitters persist, but impressive Australian data could keep pressure on the pair.