Pound Australian Dollar Five Day Forecast: Could Sterling Exchange Rates Rise on Brexit Extension?

GBP/AUD Exchange Rate Eases as No-Deal Spectre Haunts UK Markets

The Pound Australian Dollar (GBP/AUD) exchange rate opened the week at around AU$1.181 after the UK’s annual growth figure was revised higher from 1.2% to 1.3%, boosting optimism in the British economy despite ongoing Brexit uncertainty.

John Hawksworth, Chief Economist at PwC, commented:

‘Services provided the only positive contribution to growth in the output approach to GDP, with growth slowing to 0.1 per cent in the latest quarter.’

Sterling’s gains were quickly muted when Chancellor of the Exchequer, Sajid Javid warned that a no-deal Brexit ‘may well happen’ despite legislation in place to prevent the possibility.

Tuesday saw the Pound (GBP) gain on the Australian Dollar (AUD) despite September’s UK Markit Manufacturing PMI remaining in contraction territory at 48.3.

The GBP/AUD exchange rate steadied on Wednesday following a keynote speech by Prime Minister Boris Johnson at the Manchester Conservative party conference in which he announced his ‘final’ ‘take it or leave it’ Brexit deal, cautioning that the only alternative to his proposal was no deal.

He added:

‘That is not an outcome we want, it is not an outcome we seek at all – but let me tell you, my friends, it is an outcome for which we are ready.’

Thursday saw the UK’s all-important Markit Services PMI sink into contraction territory from 50.6 to 49.5, further dampening confidence in Sterling and raising fears for a near-term UK recession.

The GBP/AUD exchange rate closed the week subdued, with Brexit uncertainty haunting markets and the European parliament describing Boris Johnson’s proposal as unworkable.

With UK markets bracing for a more formal EU response, the gloom of no-deal fear has returned to dampen confidence in the Pound.

AUD/GBP Exchange Rate Edged Higher on Positive Australian Retail Sales

The ‘Aussie’ was subdued at the beginning of the week on uncertainties surrounding the ongoing US-China trade war. As China is Australia’s closest trading partner, any risk of rising tensions between the world’s two largest economies naturally weighs on the risk-sensitive Australian Dollar.

Tuesday saw the AUD/GBP exchange rate fall by -0.6% after the Reserve Bank of Australia (RBA) slashed its interest rate from 1% to a record low of 0.75%. RBA Governor Philip Lowe was dovish, saying the board would ‘continue to monitor developments’ and was ‘prepared to ease monetary policy further if needed’.

The RBA also added in its statement:

‘The Board took the decision to lower interest rates further today to support employment and income growth and to provide greater confidence that inflation will be consistent with the medium-term target… The economy still has spare capacity and lower interest rates will help make inroads into that.’

The Australian Dollar struggled on Thursday following the release of August’s Australian trade balance figure, which fell below forecast from 7,253 million to 5,926 million.

The top of the week finally saw the AUD/GBP exchange rate edge higher as positive Australian retail sales for August rose from 0% to 0.4%.

GBP/AUD Forecast: Could Sterling Climb on Brexit Extension Compromise?

‘Aussie’ traders will be looking ahead to Monday’s Australian TD Securities Inflation figure for September. Any signs of improvement could prove AUD-positive.

Meanwhile, a Tokyo summit speech by Bank of England Governor, Mark Carney will step briefly into the spotlight on Tuesday with any dovish comments on the British economy likely to hurt the Pound.

Tuesday will also see the release of September’s BRC like-for-like retail sales, which are expected to flatline at 0%.

The AUD/GBP exchange rate could then edge higher on Wednesday if October’s Australian Westpac Consumer Confidence shows any signs of improvement.

Brexit developments are likely to drive the Pound through next week, with any sign of a concession from the EU over the Conservative government’s Brexit proposal benefiting the British currency. Sterling could also see some support if the EU reject Boris Johnson’s deal and grant an extension to Article 50.

David Moore

Contact David Moore