Pound to Australian Dollar Exchange Rate Losses May be Short-Lived Amid US-China Trade Tensions
UPDATE: Investors sold the Pound against the Australian Dollar (GBP/AUD) on Tuesday, as concerns about how the UK-EU Brexit deal may impact Britain’s economic activity in the long-term weighed on Sterling (GBP).
US President Donald Trump spooked Pound investors when he claimed that the agreed UK-EU Brexit deal could prevent Britain from forging new trade relationships with other nations, including the US.
The Australian Dollar (AUD) benefitted from Sterling weakness, but its potential for further gains in the coming days is limited due to news that US-China trade tensions had worsened rather than improved.
Pound to Australian Dollar Exchange Rate Rebounds from Morning Lows as Risk Demand Lightens
UPDATE: The Australian Dollar’s (AUD) risk driven rally was short-lived, as the Pound to Australian Dollar (GBP/AUD) exchange rate recovered its losses in the afternoon.
Investors are anticipating this week’s upcoming meeting between US President Donald Trump and Chinese President Xi Jinping, but there is also uncertainty and doubt about US-China trade tensions which is dampening risk-sentiment.
Demand for the Pound (GBP) was limited though, as concerns persisted about how much domestic support the UK-EU Brexit deal would have.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Falls as Geopolitics Bolsters Risk-Sentiment
Risk-sentiment has been mixed over the last week, but on Monday the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate fell. Investors found risk-correlated currencies like the Australian Dollar (AUD) more appealing amid hopes for progress in recently strained geopolitics.
Following last week’s surge of over two cents to near the interbank level of AU$1.77, GBP/AUD slipped by around -0.3% when markets opened on Monday.
GBP/AUD may be in for further losses in the coming sessions if there is notable progress in US-China trade talks.
Perhaps the main event for Australian Dollar investors this week will be an anticipated meeting between US President Donald Trump and Chinese President Xi Jinping.
As for the Pound (GBP), the British currency’s strength is limited as markets await developments regarding the UK-EU Brexit deal’s domestic reception. Concerns that the Brexit bill could be blocked in Parliament are keeping Sterling suppressed.
Pound (GBP) Exchange Rates Limp as Brexit Jitters Persist
The Pound saw a brief jump in demand last week when the UK and EU published a political declaration regarding the goals of future relations.
With markets confident that the negotiated UK-EU Brexit deal would be smoothly finalised, news that the deal was finally confirmed at an EU summit on Sunday did little to influence the Pound (GBP) outlook.
When markets opened this morning however, Sterling movement was fairly limp. Some investors sold the British currency from its weekend highs amid concerns that the UK Parliament could block the agreed Brexit deal.
Amid concerns that the Brexit deal is still lacking support domestically, market optimism remains limited. According to David Madden from CMC Markets:
‘Theresa May has a difficult task ahead of her as she has to sell the withdrawal agreement to her own party. The EU over the weekend made it very clear that it is a take it or leave it situation in relation to the deal.’
Australian Dollar (AUD) Exchange Rates Bolstered by Risk-Sentiment
Following lower demand for risk-correlated currencies like the Australian Dollar (AUD) last week, demand for the ‘Aussie’ rose when markets opened this week.
The primary cause of Pound to Australian Dollar (GBP/AUD) exchange rate losses on Monday was due to AUD benefitting from higher market demand for yield.
US President Donald Trump and Chinese President Xi Jinping are expected to meet during a G20 summit in Argentina later in the week, and hopes that there could be positive progress in trade talks between the US and China led to rising risk-sentiment.
Analysts believe that investors are looking for signs that trade tensions will not escalate further. According to Chang Wei Liang from Muzuho Bank:
‘An agreement for talks over dinner suggests a higher level of engagement, which could result in a gentlemen’s agreement not to escalate tariffs further.’
On top of US-China trade hopes, demand for risk-correlated currencies like the Australian Dollar have also benefitted from hopes that the issue of Italy’s controversial budget could be resolved, with Italian officials seemingly taking a more conciliatory tone this week.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Outlook Depends on Risk-Sentiment
The Pound to Australian Dollar (GBP/AUD) exchange rate’s earlier losses were likely due to higher market demand for higher-yielding currencies, but if risk-sentiment weakens again the pair could quickly regain those losses.
For example, if US-China trade tensions appear to worsen again in the coming sessions, hopes for the US and Chinese Presidents to reach any kind of agreement during this week’s G20 summit could fade.
Similarly, the Pound (GBP) is likely to remain sensitive to any developments regarding domestic support for the Brexit bill.
Some notable data due for publication includes UK distributive trades stats from CBI tomorrow and Australia’s Q3 construction stats on Wednesday.
These could influence movement in the Pound to Australian Dollar (GBP/AUD) exchange rate in the event that there are no influential political developments in the coming sessions.