Pound to Australian Dollar (GBP/AUD) Exchange Rate Tumbles as China Data Hints at Major Recovery

Pound to Australian Dollar Exchange Rate Tumbles as UK Election Polls Tighten

Following strong advances last week, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has started this week out on a more bearish note. While this is partially due to UK polls tightening, it is largely due to shifts in market risk-sentiment.

After opening last week at the interbank level of 1.89, GBP/AUD spent last week trending with a solid upside bias and the pair gained an impressive two cents throughout the week, closing at around 1.91.

Since markets opened this week, Sterling (GBP) has seen a little pressure, but the risk-correlated Australian Dollar (AUD) has also seen a jump in demand. At the time of writing, GBP/AUD had lost a cent and was trending in the region of 1.90.

Investors are hesitant to move too much on the Pound in anticipation of next week’s UK General Election, so the impressive data and trade news driving risk-sentiment and the Australian Dollar are in focus for now.

Pound (GBP) Exchange Rates Slide as Election Uncertainty Takes Focus over Data

Last week saw the Pound (GBP) put in solid gains, as despite weak UK data, hopes that the ruling Conservative Party would win the upcoming General Election and push ahead with its relatively soft Brexit plans supported the British currency’s outlook.

While today’s UK ecostats beat market forecasts though, this was not enough to keep the Pound (GBP) near its best levels.

Instead, following last week’s climb on UK election hopes, some fresh weekend polls knocked the Pound from its best levels this morning.

The latest polls indicated that Britain could still be in for a hung Parliament as the opposition Labour Party continues to gain on the ruling Conservatives.

One poll showed a 9 point difference, while another showed only 6 points between the two major parties. According to Jeremy Stretch, Head of G10 FX Strategy at CIBC:

‘There are increasing parallels with the way polls played out in 2017 with what we’re seeing now, so that could cap the upside for Sterling’

Australian Dollar (AUD) Exchange Rates Jump as Chinese Data Impresses

The trade-correlated Australian Dollar has seen heavily mixed movement in recent weeks, as US-China trade relations become murkier again, but global data starts to show more signs of recovery.

Australia’s economy is sensitive to the health of the global economy due to its reliance on trade, and recent data has kept Reserve Bank of Australia (RBA) easing speculation ignited.

As a result, the latest data showing that the global economy could be recovering from a slow year benefitted the Australian Dollar this morning.

While not a significant surprise to the upside, China’s Caixin manufacturing PMI from November unexpectedly rose to 51.8 rather than dropping to 51.4 according to today’s report.

For investors following trade and risk-correlated movement, the data marked the latest in a series of signs that things were improving. Jeremy Stretch from CIBC said:

‘The fact that not only the Chinese PMI is better than expected but the underlying numbers are also encouraging plays into the narrative of other forward-looking numbers we’ve seen globally,

This gives reason for cautious optimism, even though we wait to see what happens on phase 1 of the trade US/China trade talks.’

Pound to Australian Dollar (GBP/AUD) Exchange Rate Awaits Reserve Bank of Australia (RBA)

The Pound to Australian Dollar (GBP/AUD) exchange rate is tumbling today as hopes for recovering global outlook boost demand for the trade and risk-correlated Australian Dollar (AUD).

However, Australia’s domestic outlook remains mixed. The Australian Dollar could just as quickly weaken again in the coming days if upcoming major Australian news and data disappoints investors.

Tomorrow’s Asian session will see the Reserve Bank of Australia (RBA) hold its December policy decision.

The bank isn’t expected to make any changes to monetary policy, but if the bank is more dovish than expected about its policy outlook then the Australian Dollar could weaken.

Still, investors may hesitate to move too much on the ‘Aussie’ until major Australian data due later in the week is published. Australian Q3 growth rate stats are due on Wednesday, followed by trade and retail stats on Thursday.

The Pound (GBP), on the other hand, is likely to overlook this week’s UK data, as the 2019 UK General Election draws nearer.

If polls continue to tighten over the next week and a half, the Pound to Australian Dollar (GBP/AUD) exchange rate has less chance of recovering.

Josh Jeffery

Contact Josh Jeffery