GBP/AUD Exchange Rate Rocked by High Profile Cabinet Resignations
The Pound Australian Dollar (GBP/AUD) exchange rate dramatically last week, plummeting as much as 2% in a single day as the passing of a controversial Brexit draft agreement led to two high profile Cabinet resignations and rocked confidence in Theresa May’s position as Prime Minister.
Both Brexit Secretary Dominic Raab and Work and Pensions Secretary Esther McVey announced their resignations last Thursday in protest of the deal, which Raab claimed would ‘threaten the integrity of the UK’.
This political chaos also undermined tentative gains made by Sterling in the first half of the week as another rise in UK wage growth bolstered hopes of a potential rate hike from the Bank of England (BoE) in 2019.
Meanwhile, the Australian Dollar was well positioned to exploit the weakness in Sterling last week as AUD sentiment was lifted by a combination of easing trade tensions and an impressive domestic jobs report, which saw employment jump by a solid 32,000.
Australian Dollar (AUD) Exchange Rates Dented by Renewed Trade Fears
The Australia Dollar (AUD) opens this week’s session on the back foot, relinquishing some of last week’s gains against the Pound (GBP) thanks to renewed trade war fears.
This comes as trade tensions between the US and China begin to flare again after the two countries clashed at the 2018 APEC Summit, held in Papua New Guinea over the weekend.
US Vice-President Mike Pence struck a combative tone with Beijing, telling delegates:
‘We have taken decisive action to address our imbalance with China. We put tariffs on $US250 billion in Chinese goods, and we could more than double that number.
‘The United States, though, will not change course until China changes its ways.’
This led to an equally aggressive rebuttal from Chinese President Xi Jinping and dented optimism of a possible breakthrough in trade when Trump’s meets with his counterpart at a G20 summit later this month.
GBP/AUD Exchange Rate Forecast: UK Politics to Remain a Potential Powder keg for Sterling?
Looking ahead, the Pound Australian Dollar (GBP/AUD) exchange rate may remain volatile this week as UK politics remain firmly in focus.
While the UK political landscape appears to have stabilised somewhat since last week’s resignations, Theresa May could still face a potential no-confidence vote this week if rebel MP’s are able to gather the support needed to trigger one.
Even if the numbers are not reached, Sterling still faces significant downside risks amidst speculation that the PM will struggle to get the draft deal through parliament.
Meanwhile, AUD investors await the publication of the minutes from the Reserve Bank of Australia’s (RBA) latest policy meeting, with the Australian Dollar potentially weakening if the bank remains reluctant to pursue a rate hike anytime in the foreseeable future.