Pound to Australian Dollar Exchange Rate Faces Further Weakness, No-Deal Risks Surge as Parliament to be Suspended

GBP/AUD Exchange Rate Subdued as Markets Rattled by Brexit Crisis

The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is trading in a narrow range this morning as markets remain skittish following recent UK political developments.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8101, edging down from this morning’s opening rate.

Pound (GBP) to Remain Under Pressure as Proroguing of Parliament Increases Risk of No-Deal

The Pound (GBP) is facing the prospect of significant weakness over the coming weeks, following the shock move by the UK government to prorogue parliament just days after MPs are due to return from summer recess next month.

UK parliament is now scheduled to be suspended between the week of 9 September and 14 October when it will reopen with a new Queen’s speech outlining the government’s domestic priorities.

This prompted a sharp drop in Sterling yesterday as it leaves MP’s with a very short timetable in which to try an attempt to block a no-deal Brexit.

As a consequence the risks that Boris Johnson could withdraw the UK from the EU without a deal in place have risen markedly in the past 24 hours, the threat of which is likely to keep pressure on GBP exchange rates in the weeks to come.

Derek Halpenny, head of research at financial firm MUFG suggests:

‘Wednesday’s development brings us firmly into the realms of a ‘Constitutional Crisis’. The proroguing of Parliament leaves an incredibly narrow window for Parliament to legislate the move, agree to an Article 50 extension or organise a no-confidence motion.

‘All of the above means no-deal Brexit is looking ever more likely. GBP downside risks will continue to plague the market.’

All eyes will now be on Labour and the other opposition parties to see whether Johnson’s move to suspend parliament will lead to a vote of no-confidence.

Australian Dollar (AUD) Muted amid Gloomy Domestic Data

The Australian Dollar (AUD) is currently struggling to capitalise on the Pound’s (GBP) woes this morning following the publication of Australia’s latest private sector capital expenditure (CAPEX) figures.

According to the Australian Bureau of Statistics (ABS), CAPEX unexpectedly slumped for the second consecutive quarter in Q2, contracting 0.5% against forecasts of a 0.5% expansion.

The fall in private sector investment spooked markets as it indicates Australia’s economy is slowing, putting more pressure on the Reserve Bank of Australia (RBA) to continue easing monetary policy.

GBP/AUD Forecast: Brexit to Continue to Dominate Sterling

Looking ahead, UK political developments are likely to continue to act as the main catalyst of movement in the Pound to Australian Dollar (GBP/AUD) exchange rate going forward.

This will likely overshadow the publication of the UK’s latest mortgage approval figures at the end of the week, with markets expected to shrug off the second tier release.

Meanwhile, any upside in the Australian Dollar may prove limited as US-China trade tensions continue to limit the appeal of risk-sensitive assets.

Matthew Andrews

Contact Matthew Andrews