Pound to Australian Dollar (GBP/AUD) Exchange Rate Falls as ‘Aussie’ is Boosted by US Stimulus Hopes

GBP/AUD Exchange Rate Sinks as US Stimulus Hopes Buoy Demand for Risky Assets

The Pound to Australian Dollar (GBP/AUD) exchange rate fell by -0.5% today, with the pairing currently fluctuating around AU$1.789.

The Australian Dollar (AUD) benefited from improved global investor sentiment today, a key improving the risk-averse ‘Aussie’s performance.

Markets celebrated the news that the US had hinted that both the Democrats and the Republicans would go ahead with a stimulus deal ahead of November’s Presidential election.

Jingyi Pan, the senior market strategist at IG, commented:

‘Hinging on hopes for the passage of the next US fiscal stimulus package, US equities mostly concluded the quarter on a positive note. US treasury secretary Steven Mnuchin’s latest optimism in working out the next fiscal package served as a ray of sunshine through the clouds, although some doubts cast by the Republican party did find some paring of gains later into the Wednesday session.’

The ‘Aussie’s upside has been notably capped by growing concerns over a Reserve Bank of Australia interest rate cut either next week or in November.

Carol Kong, a strategist at the Commonwealth Bank of Australia, said:

‘Our house view is that the RBA will leave monetary policy on hold at its meeting next week. AUD can lift further if the RBA does not deliver a cut.’

Pound (GBP) Sinks as EU Launches Legal Action against Downing Street’s Brexit Internal Market Bill

The Pound (GBP) fell following headlines that the European Union had launched legal action against Prime Minister Boris Johnson’s Government. The EU seeks to address the controversial Brexit Internal Market Bill.

Ursula von der Leyen, the European Commission President, commented:

‘We had invited our British friends to remove the problematic parts of their draft internal market bill, by the end of September. This draft bill is by its very nature, a breach of the obligation of good faith, laid down in the withdrawal agreement. Moreover, if adopted as is it will be in full contradiction to the Protocol on Ireland and Northern Ireland.’

GBP investors have become concerned that UK-EU could further sour and potentially jeopardise the possibility of a post-Brexit trade deal.

In UK economic news, today saw the release of September’s UK Manufacturing PMI, which remained relatively strong at 54.1.

However, with Brexit woes dominating headlines, this was not enough to boost Sterling.

Duncan Brock, the Group Director at the Chartered Institute of Procurement and Supply, commented on the report:

‘Manufacturing made solid progress towards recovery in September, with just a minor step back from August’s two-and-a-half-year index high. New pipelines of work increased for the third month in a row and export orders the strongest for almost two years.’

GBP/AUD Forecast: Hard Brexit Fears Could Drag Down Sterling Further

Australian Dollar (AUD) investors will be looking ahead to tomorrow’s release of August’s Australian Retail Sales data. If this falls significantly, then the ‘Aussie’ would suffer.

However, ‘Aussie’ will remain sensitive to global economic sentiment. Any signs of a struggling global economy would weigh on the risk-averse currency.

The GBP/AUD exchange rate could remain subdued into the weekend as UK-EU relations sour over the Brexit Internal Market Bill. As a result, Sterling will remain downbeat as long as there are fears of a hard Brexit later this year.

David Moore

Contact David Moore