GBP/AUD Exchange Rate Inches Lower on Quiet Trading Conditions
The Pound Australian Dollar (GBP/AUD) exchange rate is trending down at the time of writing as UK political headwinds outweigh Australian Dollar (AUD) downside. GBP/AUD is likely to trade with an eye on current affairs through today’s session.
At the time of writing, GBP/AUD is trading at A$1.7515, down 0.3% from today’s opening levels.
Pound (GBP) Sinks as Political Disarray Sinks In
The Pound (GBP) is weakening against the majority of its peers this morning as investors digest the implications of Boris Johnson’s resignation. Initially, Sterling rebounded as weeks of uncertainty came to a head: today, however, markets contemplate the precariousness that remains.
The lack of a clear successor to the role is indicative of the confusion that abounds in the wake of Johnson’s departure. Possible frontrunners include Nadhim Zahawi, Liz Truss, Sajid Javid, Suella Braverman and Rishi Sunak.
However, an array of additional lower-profile candidates complicate what may otherwise be a fairly clear-cut decision. Drawn-out debates over who would be most suitable have meanwhile allowed Johnson to retain power for longer: despite quitting the role of Prime Minister, he signalled yesterday that he intends to run the government until a new leader is elected.
As usual, the uncertain outlook ahead has triggered volatility in the Pound, which is compounded by bearish trading sentiment across the currency markets. Investors have adopted a cautious mood ahead of America’s jobs report for June.
Meanwhile, US stock index futures – an indicator of market sentiment – are down alongside equities. Fears of restrictive containment measures in China exacerbate downside, as weakness in the world’s second-largest economy could trigger a global recession.
Australian Dollar (AUD) Wavers on Risk-Off Headwinds
The Australian Dollar (AUD) is struggling to attract support this morning amid risk-off trading headwinds and rumours that the Reserve bank of Australia (RBA) may have overcommitted to tightening monetary policy.
The global economic outlook is relatively bleak, given mixed signs of economic recovery and abounding recession fears across the bloc. While the Australian economy is more stable than many, uneven strength in other parts of the world inspire a risk-off market mood.
Meanwhile, analysts at OCBC bank suggest the RBA is likely to underdeliver on interest rate hikes. The Australian central bank was overtly hawkish in its announcements ahead of this week’s 50bps hike, although Governor Philip Lowe tempered his tone on 5 July.
‘The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market,’ said Lowe.
Nevertheless, the central bank head acknowledged that ‘the Australian economy remains resilient and the labour market it tighter than it has been for some time’, potentially capping losses; another source of downside pressure emerged in news of fresh Covid infections in China.
GBP/AUD Exchange Rate Forecast: Political Developments to Influence Trading?
Looking ahead, political developments in Britain are likely to influence GBP exchange rates today, given the scope for change that a new Prime Minister represents. If a clear frontrunner for PM emerges, Sterling could climb on dwindling uncertainty.
Elsewhere, risk sentiment is likely to direct AUD dynamics, given a lack of significant AU data today.