Pound to Australian Dollar (GBP/AUD) Exchange Rate Buoyant on Brexit Hopes and Risk-Aversion

Political developments remain in focus this week, keeping the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate jittery. Investors have been hesitant to buy either currency too much, but the Pound (GBP) is seeing stronger support on Brexit hopes today.

Last week’s mixed movement saw GBP/AUD tumble to interbank lows of 1.78, before rebounding slightly and closing the week in the region of 1.80.

While GBP/AUD has seen even narrower movement this week so far, the pair has recovered some of last week’s losses. At the time of writing, GBP/AUD has just about been able to climb back into the interbank region of 1.81.

The Pound will remain focused on Brexit developments in the coming sessions. Meanwhile, the risk and trade-correlated Australian Dollar (AUD) is focusing on the tumultuous political developments of the US.

Pound (GBP) Exchange Rates Buoyed on Hopes Brexit Progress is Being Made

At the weekend, UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen announced a month extension to UK-EU Brexit negotiations. This boosted hopes that a last minute Brexit deal of some kind could still be reached.

What’s more, Brexit negotiations have reportedly shown noteworthy progress in recent sessions. This is helping to support Sterling (GBP) today.

According to a source speaking to Reuters:

‘We seem to be getting closer and closer to a deal, even though the no-deal rhetoric in public might suggest the opposite,’

Reports of a more positive tone are a relief to investors, after the UK government controversially undermined the UK-EU Brexit withdrawal agreement last month.

Australian Dollar (AUD) Exchange Rates Weaker as US Stimulus News Hits Risk-Sentiment

The Australian Dollar (AUD) is a currency often correlated with market risk and trade-sentiment. As a result, it has been highly sensitive to the major US political developments of the past week.

Indeed, while the Australian Dollar benefitted from news that US President Donald Trump had been discharged from hospital, other news has since hit it lower again.

Investors were much less willing to take risks after President Trump told Congress to stop negotiating a coronavirus stimulus package until after the 2020 Presidential Election was over.

Stimulus negotiations had been getting closer in recent sessions, which was boosting market sentiment. However with no stimulus likely now, stocks are falling and investors are rushing back to safe havens.

Pound to Australian Dollar (GBP/AUD) Exchange Rate Awaits Political Developments

There is not much notable UK or Australian data due until the end of the week. This means the Pound to Australian Dollar (GBP/AUD) exchange rate is more likely to react to developments in UK and US politics.

Markets are still closely watching UK-EU Brexit talks and news. If there is any more optimistic news about progress in UK-EU talks, the Pound’s appeal could strengthen. This could keep GBP/AUD advancing.

Bad Brexit news, or a recovery in risk-sentiment, could push the pair lower instead.

The Australian Dollar could become more appealing if there are any U-turns in US President Donald Trump’s calls for stimulus negotiations to stop. On the other hand, risk-sentiment may only worsen further if Trump’s coronavirus illness worsens again.

According to Analysts at OCBC, risk-off could be here to stay:

‘Assuming that Trump doesn’t flip-flop on his stance on the fiscal stimulus package, we think remnant hopes of reviving the risk-on, reflation trade may be put to rest for now. Our defensive stance is likely still warranted going ahead.’

As a result, the Pound to Australian Dollar (GBP/AUD) exchange rate has the potential to climb further in the coming sessions.

Josh Jeffery

Contact Josh Jeffery