GBP/AUD Exchange Rate Subdued amid Improved Risk Sentiment
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is on the back foot this morning, in response to positive US-China trade headlines.
At the time of writing the GBP/AUD exchange rate is trading at around AU$1.7918, having slipped around half a cent overnight.
Australian Dollar (AUD) Strengthened by Trump’s Tariff Delay
The Australian Dollar (AUD) was swept higher overnight on Wednesday amidst a strong pick-up in market risk appetite.
This came on the back of encouraging US-China trade headlines, buoying hopes that the two powers may be able to resolve their trade dispute.
On Wednesday, Beijing extended an olive branch to Washington by offering to buy more US agricultural products.
In response US President Donald Trump announced that tariffs hikes scheduled to go into effect on 1 October would be delayed by two weeks to allow Beijing to celebrate the 70th anniversary of the establishment of the People’s Republic of China.
….on October 1st, we have agreed, as a gesture of good will, to move the increased Tariffs on 250 Billion Dollars worth of goods (25% to 30%), from October 1st to October 15th.
— Donald J. Trump (@realDonaldTrump) September 11, 2019
The latest developments come as the two sides prepare for high-level trade talks in Washington next month, bolstering hopes that the US and China will be able to make some progress towards a deal.
Renewed trade optimism saw markets go risk-on, and reflected particularly well on the ‘Aussie’ which is often used as a proxy for China.
Brexit Pessimism Weighs on the Pound (GBP)
The Pound (GBP) is struggling to hold its ground this morning as it is pressured by lingering Brexit pessimism.
Overnight the UK government published papers pertaining to Operation Yellowhammer, outlining its ‘reasonable worse case planning assumptions’ for a no-deal Brexit.
The documents, whose release was forced by a vote in parliament, detail the potential economic disruption caused by a no-deal, warning it could result in rising food and fuel prices, disruption to medicine supplies and public disorder on Britain’s streets.
With much of the details of the report having already been leaked last month market reaction was limited, but it certainly didn’t help to clear up some of the negative bias currently surrounding the Pound.
GBP/AUD Forecast: UK Election Expectations to Limit Upside in Sterling.
While the chances of a no-deal Brexit in October have diminished, the Pound to Australian Dollar (GBP/AUD) exchange rate may struggle to accelerate in the face of ongoing political uncertainty in the UK.
This comes amidst heightened expectations that the UK will face a general election by the end of the year and its potential to drive Sterling lower.
Petr Krpata, Chief EMEA FX and IR Strategist at ING suggests:
‘Given our base case for early elections in late November / early December expect GBP to come back under pressure. Among other things, the possible victory of the Conservative party under the leadership of Boris Johnson would mean an increased likelihood of no deal Brexit should Conservatives achieve a Parliamentary majority’
In the meantime, GBP investors may look to the Bank of England (BoE) for fresh impetus next week, but with policymakers likely to hold off on any policy changes until there is more clarity on Brexit, the bank’s policy meeting could prove to be a non-starter.
For AUD investors the focus may be on Australia’s upcoming Jobs report, where the potential for domestic employment to disappoint could put the pressure on the Reserve Bank of Australia (RBA) to cut rates again in October.