Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rate Remains on Back Foot Thanks to Leadership Jitters

Conservative Leadership Question Continues to Weigh on GBP/AUD Exchange Rate

UPDATE: The mood towards Pound Sterling (GBP) struggled to improve on Wednesday morning as focus turned back towards the Conservative leadership race.

News that Boris Johnson has been summoned to appear in court over comments made while campaigning for Brexit failed to provoke any particular reaction from the GBP/AUD exchange rate.

A lack of fresh Australian data limited the potential for Australian Dollar (AUD) gains, meanwhile.

GBP/AUD Exchange Rate Limits Losses as UK Mortgage Approvals Hit Two-Year High

UPDATE: Pound Sterling (GBP) found some support on the back of April’s BBA mortgage approvals figure, which hit a two-year high as the delayed Brexit deadline bolstered the housing market.

As consumers proved quick to shrug off the ensuing political uncertainty this gave the GBP/AUD exchange rate a slight boost, encouraging the pairing to trend in a narrow range this afternoon.

Even so, the Pound remains vulnerable to any abrupt shifts in the domestic political landscape in the days ahead.

Improved Australian Sentiment Dents Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate

An uptick in the ANZ weekly consumer confidence index put additional pressure on the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate this morning.

As sentiment within the Australian economy continued to show signs of improvement the mood towards the Australian Dollar (AUD) saw a modest improvement.

However, as global trade tensions persist AUD exchange rates remained on a generally weak footing thanks to the Australian Dollar’s exposure to trade and the health of the global economy.

Coupled with the increasingly dovish outlook of the Reserve Bank of Australia (RBA) this has left investors with limited incentive to favour the antipodean currency, although this was not enough to benefit the GBP/AUD exchange rate.

Political Jitters Keep Pound Sterling (GBP) Under Pressure This Week

Political anxiety weighed down Pound Sterling (GBP), meanwhile, as markets continued to process the outcome of the European Parliament elections.

Although the vote saw a swing towards the remain-supporting Liberal Democrats and Greens this was not enough to overshadow the gains of the Brexit Party.

As a result, investors remain wary of the prospect of the UK political landscape shifting towards a more hard-line stance on Brexit.

With the frontrunners in the race to succeed Theresa May as Conservative Party leader coming from the Brexiteer camp confidence in the outlook of GBP exchange rates remains low.

As long as markets see higher odds of the UK leaving the EU without a deal the Pound may struggle to find any real degree of traction against its rivals.

Weak Consumer Confidence to Add to Pound Sterling (GBP) Exchange Rate Weakness

If Thursday’s GfK consumer confidence index shows a fresh deterioration on the month this could add to the bearishness of the GBP/AUD exchange rate.

With wage growth already showing signs of slowing and with inflation rising household finances look set to come under greater pressure in the months ahead, limiting consumer confidence and spending.

This could drag on economic growth in the second quarter, as a resilient level of consumer spending had previously helped to offset a wider slowdown in the manufacturing and service sectors.

However, an uptick here may offer GBP exchange rates a temporary rallying point, provided that political jitters ease in the meantime.

Australian Dollar (AUD) Vulnerable to Faltering Business Investment

Demand for the Australian Dollar, on the other hand, could deteriorate on the back of the first quarter private capital expenditure reading.

After strong growth of 2% at the end of 2018 forecasts point towards a significant slowdown to just 0.5%, suggesting that Australian business are taking a more cautious outlook.

This would not bode well for the underlying strength of the Australian economy, raising the risk of growth falling back in the second quarter as business investment falters.

Even so, if April’s building permits figure shows a solid rebound on the month this could limit the downside potential of AUD exchange rates in the near term.

Louisa Heath

Contact Louisa Heath