Pound Australian Dollar (GBP/AUD) Exchange Rate Sinks, UK Markets Brace for Parliamentary Showdown

GBP/AUD Exchange Rate Falls on Increasing Political Turmoil

The Pound Australian Dollar (GBP/AUD) exchange rate plummeted to around AU$1.784 this morning, as UK politics entered a state of alarming fluidity ahead of today’s parliamentary showdown.

A cross-party opposition, consisting of Rebel Tory and Labour MPs, is expected to table legislation which will force the Government to extend the October 31 Brexit deadline.

However, Prime Minister Boris Johnson could call for a snap general election on October 14 – the day scheduled for the Queen’s speech – if MPs regain control of parliament.

Philip Hammond, the former UK Finance Minister, commented:

‘There is no progress. There are no substantive negotiations going on… Brussels, Berlin, Paris are still waiting for the UK proposal.’

In economic news, the UK’s Markit Construction PMI for August fell below forecasts, sinking deeper into contraction territory from 45.3 to 45 and providing further downward pressure on the GBP/AUD exchange rate.

August’s BRC Like-For-Like Retail Sales also fell from 0.1% to -0.5%.

Helen Dickinson, the Chief Executive at BRC, said:

‘Greater economic and political uncertainty has driven down consumer demand. While the summer weather gave a small boost to food sales, this was cancelled out by a drop in non-food sales.’

AUD/GBP Exchange Rate Soars as RBA Holds Interest Rates

The Australian Dollar (AUD) gained on the Pound (GBP) following the Reserve Bank of Australia’s (RBA) decision to hold interest rates at 1%, despite a flagging economy.

Philip Lowe, the RBA’s Governor, cited a wait-and-see approach in a statement released with the central bank’s decision, saying there are ‘further signs of a turnaround in established housing markets’, which AUD investors have interpreted as bullish a tone.

Shane Oliver, an Analyst at AMP Capital, was downbeat:

‘With only trade and public spending keeping the economy from going backwards, the growth outlook remains weak with the housing construction downturn gathering pace and threat from Trump’s trade war increasing, and there is no sign of any pick-up in wages growth and inflation with unemployment looking more likely to drift up than down.’

US-China trade tensions remain in focus for risk-averse Australian markets today, with Beijing placing the onus on US President Donald Trump to resolve tensions.

Wang Huiyao, President of the Centre for China and Globalization, commented:

‘I think that for the U.S., they have to see the progress China is making and then probably work on that momentum to push China to be more open, rather than put China into a hard position.’

‘Aussie’ traders remain cautious as the US-China trade situation lingers in a state of deadlock.

GBP/AUD Outlook: Sterling Could Rise if a No-Deal Brexit is Successfully Challenged

Pound traders will be looking ahead to tomorrow’s Markit Services PMI for August, which is forecast to ease from 51.4 to 51.

Meanwhile, ‘Aussie’ investors await tomorrow’s publication of the Australian growth figure for the second quarter. If these confirm estimates and rise from 0.4% to 0.5%, we could see a boost to the Australian Dollar.

The GBP/AUD exchange rate could improve if the Conservative Government face a successful challenge in today’s parliamentary showdown, increasing the odds for an averted no-deal Brexit.

David Moore

Contact David Moore