Pound Australian Dollar Exchange Rate Trades Sideways as Top Ministers Resign
The Pound Australian Dollar (GBP/AUD) exchange rate is trading at a 3-week low this morning as UK-specific headwinds dent Pound (GBP) sentiment while the Australian Dollar (AUD) remains subdued by general risk aversion. Fears of a recession continue to weigh upon market mood, as equities trade lower.
At the time of writing, GBP/AUD is trading at A$1.7575, down slightly from today’s opening levels.
Pound (GBP) Pressured by Political Uncertainty
The Pound faces fresh headwinds today following the resignation yesterday evening of Conservative ministers Sajid Javid and Rishi Sunak – formerly chancellor of the exchequer.
While Prime Minister Boris Johnson has declared his intentions to retain the premiership, a snap YouGov poll suggests that two-thirds of Britons want him to resign. Pressure for him to do so is likely to mount as Johnson faces ‘Prime Minister’s Questions’ (PMQs) at lunchtime today.
The uncertainty this creates regarding further government support measures in the midst of a cost-of-living crisis has added to Sterling downside, which is also fuelled by fears of a recession and a comparatively dovish Bank of England (BoE).
Earlier this morning, BoE Deputy Governor Cunliffe said:
‘What we expect is that the cost-of-living squeeze will actually hit people’s spending and that will start to cool the economy… We can see signs that the economy is already slowing.’
Cunliffe tempered his remarks with some hawkishness, adding that the Bank of England will do ‘whatever is necessary’ to prevent the recent surge in inflation from becoming embedded.
Subsequently, BoE chief economist Huw Pill commented on the central bank’s position, striking a similar tone.
Pill observed that inflation shock will likely translate into second-round effects – but assured that the bank would take a flexible approach, demonstrating a willingness to act faster alongside conditionality in responding to emerging challenges.
Australian Dollar (AUD) Expected to Tumble
The Australian Dollar is enjoying upside against several of its peers this morning, despite forecasts that the currency is due to come under pressure on account of the Reserve Bank of Australia (RBA)’s interest rate decision yesterday.
According to analysts at OCBC Bank, the RBA is likely to disappoint expectations as markets price in additional hikes of 173 bps by the year’s end: despite a hawkish move in raising Australia’s interest rate to 1.35%, the MPC’s accompanying statement lacked a hawkish tilt.
‘We have viewed the AUD market pricing of rate hikes as the most overly hawkish among major markets,’ say analysts.
Lending the ‘Aussie’ support, on the other hand, are rising iron ore prices: the key Australian export is increasing in value alongside coal – another key commodity.
Nevertheless, AUD gains will most likely be capped by risk aversion over slowing growth in the global economy.
Later today, US data is expected to reveal a fall in services activity in June, exacerbating risk aversion as challenges to the world’s largest economy implicate global markets.
Pound Australian Dollar Exchange Rate Forecast: Both Currencies to Face Continuing Headwinds?
Looking ahead, the Pound Australian Dollar exchange rate may continue to trade in a narrow range today as both the Pound and the Australian Dollar face ongoing pressures.
As the UK’s political scene is shaken, the ‘Aussie’ remains threatened by widespread risk aversion, given its perceived-riskier status.
Further comments from the Bank of England later today may influence GBP/AUD, lending support if a hawkish tone is struck.