Pound to Australian Dollar Exchange Rate Pressured amid US-China Trade Hopes
The Pound to Australian Dollar (GBP/AUD) looks set to round out this week steadying, as investors digest the results of last night’s UK General Election. The Pound (GBP) is sliding back today but is on track to sustain major gains overall.
After opening this week at the interbank level of 1.92, GBP/AUD spent most of the week trending with an upside bias near its best levels since the 2016 Brexit vote on UK election hopes.
GBP/AUD briefly dipped yesterday amid election result anticipation, before rocketing higher when the first major exit polls came in. GBP/AUD touched on a high of 1.95 overnight – the pair’s best level since the 2016 Brexit Referendum.
While GBP/AUD is currently trending closer to the interbank level of 1.93, the pair is still on track to sustain strong gains. The Australian Dollar’s (AUD) strength has been boosted by speculation that a US-China ‘phase one’ trade deal is imminent.
Pound (GBP) Exchange Rates Steadies Following Overnight Surge
For most of yesterday’s session, the Pound (GBP) saw pressure and tumbled amid market anticipation of a potentially unexpected result to the day’s 2019 UK General Election.
However, when the election’s first exit polls first came in after polls closed, they predicted that the ruling Conservative Party would win a large majority. In reaction, the Pound rocketed.
Investors bought the Pound to new highs against major rival currencies. As results came in through the night, they confirmed that the exit polls were fairly close to reality.
The Pound began to slip from its best levels this morning however, as markets digested the news and what it meant for the Brexit process.
While no-deal Brexit fears have been significantly doused, there is still uncertainty over how the next phase of Brexit negotiations will unfold. Some analysts remain concerned that the UK government will not want to extend negotiations if time runs out.
Once the UK has left the #EU, focus will quickly turn to the 11M transition period that will almost certainly need extending. But while Johnson's large majority gives him the space to extend, don't rule out a messy set of UK-EU talks in the spring #GE2019 pic.twitter.com/CVCjUJGGD2
— James Smith (@SmithEconomics) December 13, 2019
Australian Dollar (AUD) Exchange Rates Firming on US-China Trade Hopes
The Australian Dollar (AUD) has been generally sturdy in the second half of the week, amid central bank speculation. A less hawkish than expected Federal Reserve, as well as resilient optimism from the Reserve Bank of Australia (RBA), boosted AUD demand.
On top of this, rising hopes that the US could delay upcoming trade tariffs on China kept the trade-correlated ‘Aussie’ supported.
US-China trade hopes remained the primary cause of Australian Dollar strength at the end of the week.
Optimistic tweets from US President Donald Trump and media reports saying that a ‘phase one’ trade deal was close, both caused a late-week rise in demand for trade-correlated currencies like the ‘Aussie’.
According to Kathy Lien, Managing Director of Forex Strategy at BK Asset Management:
‘It is important to realize that there still hasn’t been any official announcements but between (US President Donald) Trump’s tweets and reports by the media, there’s more reason to believe that minimally, tariffs will be delayed,’
Pound to Australian Dollar (GBP/AUD) Exchange Rate Turns Back to Geopolitics
With the UK 2019 General Election having more or less reached its conclusion and the ruling Conservative Party winning a strong majority, the uncertainty of a hung Parliament has faded from the Pound’s (GBP) outlook.
Uncertainties do persist though, in the form of the next steps for the Brexit process.
The UK government is expected to be able to push its relatively soft Brexit plans through Parliament over the coming month, and exit the EU by the end of January.
However, this will begin a new phase of Brexit negotiations set to take place during a transition period. Concerns about how hard-line the government will go in talks are likely to weigh on the Pound going forward.
Closer on the horizon is next week’s UK PMI projections, job market, inflation rate, retail sales and growth rate results. The slew of typically influential may cause notable Pound movement as markets pull back slightly from political focus.
The Australian Dollar (AUD), on the other hand, is likely to focus on the possibility of a US-China trade deal of some kind being reached, as well as next week’s key Australian job market report.
Australian job stats could have a big impact on Reserve Bank of Australia (RBA) policy speculation and the Pound to Australian Dollar (GBP/AUD) exchange rate if it surprises investors.