Updated 16:34 BST 25/07/2019:
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate continued to climb throughout Thursday’s European session, as Central Bank speculation and news left trade-correlated currencies like the Australian Dollar (AUD) weak.
GBP/AUD touched on its best interbank levels in over a fortnight this afternoon, 1.79.
As the European Central Bank’s (ECB) July policy decision was less dovish than expected, and Federal Reserve interest rate cut bets have been lightening too, the recent rise in Reserve Bank of Australia (RBA) interest rate cut bets has been pushing AUD lower.
Pound to Australian Dollar Exchange Rate Holds Best Levels despite Mixed Pound Appeal
Following a Wednesday jump in demand for the Pound (GBP), the British currency’s rebound slowed today. The Pound to Australian Dollar (GBP/AUD) exchange rate continued to climb though, as the Australian Dollar (AUD) was sold on the latest Reserve Bank of Australia (RBA) news.
The Australian Dollar was one of last week’s more appealing major currencies, as GBP/AUD fell from the interbank level of 1.79 to briefly touch on a 2019 low of 1.76, before closing the week at the level of 1.77.
This week though, Sterling’s rebound and weakness in the ‘Aussie’ has seen GBP/AUD recover almost all of those losses. At the time of writing on Thursday, GBP/AUD trended closely to the level of 1.7908.
Brexit uncertainty is keeping pressure on the Pound outlook, but the Australian Dollar may not be able to regain this week’s losses as Reserve Bank of Australia interest rate cut bets continue to rise.
Pound (GBP) Exchange Rates Steady Following Volatile Movement on UK Politics
Demand for the Pound (GBP) rebounded from its worst levels yesterday, as investors digested the change of Britain’s government.
Investors bought the currency from its cheapest levels in profit-taking, as the long Conservative Party leadership contest had finally come to an end and the Boris Johnson government entered office.
There was some limited relief that the contest’s period of uncertainty had come to an end, but the Johnson government was still perceived as worsening the chances of a hard Brexit overall.
Johnson filled his government cabinet with hard Brexit supporters, which made investors hesitant to keep buying the British currency today.
Some analysts noted that yesterday’s Sterling gains were likely a brief respite, with no-deal Brexit fears likely keeping Sterling unappealing overall.
Australian Dollar (AUD) Exchange Rates Tumble on Reserve Bank of Australia (RBA) Bets
It was only earlier this year when Australian markets were still speculating that the Reserve Bank of Australia (RBA) could hike Australian interest rates within the coming years.
Then, global trade tensions and slowdown concerns hit.
Recent Australian data has fallen short of expectations, global trade tensions persist, and many major Central Banks are taking more dovish stances on monetary policy.
As a result, bets that the RBA could continue to cut Australian interest rates have only risen.
This week’s news that Westpac was forecasting two more rate cuts from the RBA, as well as fresh comments from RBA Governor Philip Lowe, have caused rate cut bets to deepen further.
Overnight, Lowe indicated that rates could be cut further, and also signalled that rates would remain low for some time. He said:
‘it will be some time before inflation is comfortably back within the target range
it is reasonable to expect an extended period of low interest rates.’
These comments kept the Australian Dollar (AUD) near its weekly lows and made it easier for GBP/AUD to keep climbing despite Brexit fears.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Awaits Further Brexit and Central Bank News
The Pound to Australian Dollar (GBP/AUD) exchange rate has put in a solid recovery this week, and unless there are some surprising developments in UK politics or global trade before markets close the pair is likely to sustain most of these gains.
No notable UK or Australian data is due for publication before the end of the week.
This leaves Pound (GBP) investors focused on the new Boris Johnson government, and any signs on how the government will handle Brexit.
The Australian Dollar (AUD) on the other hand will be reacting to Reserve Bank of Australia (RBA) interest rate speculation, as well as potential developments in US-China trade relations, ahead of next week’s anticipated Australian inflation rate report.
Australian inflation from Q2, due on Wednesday, could have a significant impact on RBA bets and the Pound to Australian Dollar (GBP/AUD) exchange rate if it surprises investors.