Pound Australian Dollar (GBP/AUD) Exchange Rate Rises despite No Confidence Vote
The Pound Australian Dollar (GBP/AUD) exchange rate rose overnight as an increasingly cautious market mood dampened demand for the risk-sensitive Australian Dollar (AUD).
This trajectory continued into the European session as investors hoped a vote of no confidence due to take place this evening will settle the political instability that has hurt the Pound (GBP) in recent weeks.
Australian Dollar (AUD) Dips on China-Australia Tensions
The Australian Dollar fell in overnight trade as the recent risk-on mood that has characterised markets faded somewhat, thereby causing the riskier ‘Aussie’ to soften.
China-Australia tensions may also have rattled AUD investors.
Yesterday, a Chinese fighter jet intercepted an Australian surveillance plane. According to Canberra, the Chinese pilot acted threateningly, releasing flares and cutting in front of the Australian aircraft. The jet also released ‘chaff’ – particles of aluminium designed to disrupt a radar.
Australian Prime Minister Anthony Albanese said:
‘The intercept resulted in a dangerous manoeuvre which did pose a safety threat to the P-8 aircraft and its crew.’
The Australian plane was in international airspace over the South China Sea at the time of the intercept, although China stakes claim to the area.
The incident comes amid rising tensions between China and the West following Russia’s invasion of Ukraine. Therefore, it may have played a part in the waning risk appetite.
In addition, China is Australia’s largest trading partner and the ‘Aussie’ Dollar is often traded as a proxy for the Chinese economy. As a result, souring relations between the two countries could be hurting AUD.
Pound (GBP) Firms ahead of No Confidence Vote
Meanwhile, Sterling is strengthening today. The only apparent catalyst for the movement is the news that Boris Johnson will face a vote of no confidence tonight.
It seems as though GBP investors expect the Prime Minister to win the no confidence vote and stay in office. If Johnson does win, he will be safe from any more challenges to his leadership for another year. Such an outcome would create political stability, which is favourable for the Pound.
Since the ‘partygate’ scandal began last year, the UK’s political uncertainty has pummelled the Pound. Markets are hopeful that this will finally be put to bed.
GBP/AUD Exchange Rate Forecast: No Confidence Vote and RBA in Focus
Looking ahead, Sterling’s strength could falter. While many cabinet ministers have voiced their support for Boris Johnson ahead of the no confidence vote, his critics are also expressing their views – and often in a far more forceful way.
Senior Tory MP Jeremy Hunt released a statement explaining why he will vote against the PM tonight. On Twitter, Hunt wrote:
‘Having been trusted with power, Conservative MPs know in our hearts we are not giving the British people the leadership they deserve.
‘We are not offering the integrity, competence and vision necessary to unleash the enormous potential of our country.
‘And because we are no longer trusted by the electorate, who know this too, we are set to lose the next general election…
‘Today’s decision is change or lose. I will be voting for change.’
Meanwhile, Conservative MP John Penrose has resigned as the PM’s anti-corruption champion, publishing an open letter to Johnson saying that the PM broke the ministerial code and should have resigned.
If it starts looking as though Johnson could lose the vote tonight, then GBP may slip.
As for the ‘Aussie’, AUD investors are likely looking ahead to the Reserve Bank of Australia’s (RBA) interest rate decision overnight. Consensus estimates see the bank hiking interest rates by 25 basis points.
However, after the last meeting’s minutes showed that policymakers discussed a 40-bps hike, some analysts believe this could be a possibility.
If the RBA delivers a hawkish surprise, AUD could climb.