UK’s Hard Line on Brexit Weighs on Pound Australian Dollar (GBP/AUD) Exchange Rate
Resurgent worries over Brexit saw the Pound Sterling to Australian Dollar (GBP/AUD) exchange come under renewed pressure today.
As chief UK negotiator David Frost continued to adopt a hard line, ruling out any attempt to extend the current transition period deadline, the mood towards Pound Sterling (GBP) generally soured.
Mounting political turmoil also kept GBP exchange rates on a softer footing as the government split over Dominic Cummings’ flouting of lockdown restrictions deepened.
Increasing disunity within the Conservative Party left investors with little reason to favour the Pound at this stage, with Boris Johnson’s standing showing signs of erosion as the pushback against Cummings built further.
Even with further retailers announcing plans to begin a return to normality in the wake of the latest easing in lockdown conditions a sense of anxiety continued to plague the Pound.
Fresh Hong Kong Unrest Limits Australian Dollar Upside
Support for the Australian Dollar (AUD) also showed signs of weakening, however, as geopolitical tensions surrounding China picked up.
China’s decision to impose fresh security laws on Hong Kong stirred renewed controversy and elevated the threat of renewed unrest within the region.
While investors continued to focus on moves towards a normalisation of global economic activity the potential for a further souring of US-China relations lingered.
Unless the threat of a fresh trade spat between the world’s two largest economies dissipates this could keep a cap on the strength of the Australian Dollar in the weeks ahead.
Weakening Capital Expenditure Set to Drag on Australian Dollar
AUD exchange rates could see further downside pressure tonight if the first quarter Australian capital expenditure data shows another solid quarterly contraction.
Fresh evidence of a decline in private investment in the first three months of the year could fuel fears of a deeper economic contraction to come.
As the data largely predates the impact of the Covid-19 crisis a further drop in investment looks likely in the second quarter, casting a shadow over the economic outlook.
Unless investment shows a smaller drop on the quarter than forecast the Australian Dollar looks set to fall out of favour with investors, offering the GBP/AUD exchange rate fresh support.
Pound Exchange Rates Brace for UK House Price Index Report
While fresh UK data releases are a little thin on the ground this week the Pound could find a rallying point on the back of Friday’s Nationwide house price index.
If the UK housing market can demonstrate any signs of recovery as the UK lockdown starts to ease this may give the GBP/AUD exchange rate a boost ahead of the weekend.
Even so, with forecasts pointing towards a fresh monthly contraction in house prices the potential for fresh Pound losses remains.
As long as markets see reason to doubt the strength of the economic outlook, and the likely speed of the recovery from the Covid-19 crisis, support for GBP exchange rates could prove largely limited.