High Market Odds of Conservative Majority Fuel Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Strength
With markets pricing in high odds of Thursday’s election resulting in a Conservative majority the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate remained at its highest level since the 2016 referendum.
As the latest polls continued to point towards a solid Conservative lead, in spite of a large number of undecided voters, the mood towards Pound Sterling (GBP) generally improved.
While the potential for an election upset remains this was not enough to dampen the mood of investors at the start of the week, keeping GBP exchange rates on a strong footing across the board.
With markets seeing substantially lower odds of another hung parliament the downside potential of the Pound naturally eased, although the opportunity for further gains also looks limited in the near term.
Disappointing Chinese Trade Figures Dent Australian Dollar
Support for the Australian Dollar (AUD), meanwhile, weakened in response to November’s disappointing Chinese trade data.
An unexpected -1.1% decline in export volumes suggests that the world’s second-largest economy remains under pressure in the fourth quarter, reflecting the impact of ongoing trade tensions.
This put a dampener on the risk-sensitive Australian Dollar, with a lower level of Chinese demand likely to increase the drag on the Australian economy as base metal exports decline.
Until markets see reason to bet that the US and China could reach a phase one trade agreement before the end of the year the appeal of the antipodean currency looks set to remain muted.
With global growth still on track to slow further in the coming quarters the potential for a stronger Australian economy remains limited.
Weakening NAB Business Confidence Index Forecast to Extend Australian Dollar Losses
The Australian Dollar may slip further out of favour tomorrow if the NAB business confidence index weakens as forecast in November.
Fresh evidence of weakening business sentiment would cast a further shadow over the domestic outlook, raising the odds of a softer fourth quarter growth rate.
AUD exchange rates also look vulnerable ahead of the latest commentary from Reserve Bank of Australia (RBA) Governor Philp Lowe overnight.
As investors expect to see the central bank lower its growth forecasts in its upcoming bulletin markets could prove sensitive to any signs of dovishness in Lowe’s comments.
Any indication that the RBA is not happy with the current shape of the economy could see the Australian Dollar fall further out of favour.
GBP Exchange Rate Gains Vulnerable to Signs of Lost UK Growth Momentum
While election speculation looks set to remain the primary driving force of the Pound this week the release of fresh UK gross domestic product data may provoke some additional jitters.
Forecasts point towards a drop in the three-month rolling average, suggesting that economic growth stagnated in the three months to October.
However, if the monthly growth figure shows an uptick on September’s -0.1% this could encourage bets that the economy is recovering some of its lost momentum heading into the end of the year.
With the issue of Brexit still unresolved, though, worries over the underlying health of the UK economy still look set to put a dampener on the GBP/AUD exchange rate tomorrow.