Pound Australian Dollar (GBP/AUD) Exchange Rate Buoyed as Sunak Chooses Cabinet
(Updated 16:00, 25/10/22) The Pound Australian Dollar (GBP/AUD) exchange rate wavered higher today as markets seemed to celebrate UK Prime Minister Rishi Sunak’s cabinet reshuffle. However, an upbeat market mood supported the risk-sensitive Australian Dollar (AUD), limiting Sterling’s gains.
At the time of writing, GBP/AUD is trading at around AU$1.7925, up 0.3% on the day but below an earlier high of AU$1.8000.
Shortly after entering Number 10 today, Sunak set about reshaping his cabinet. The Pound (GBP) rose as he did so, with GBP investors seemingly pleased as Liz Truss supporters either resigned or were sacked.
As expected, the PM chose to keep Jeremy Hunt in place as Chancellor of the Exchequer, in a bid to maintain stability in financial markets.
The Rt Hon Jeremy Hunt MP @Jeremy_Hunt has been re-appointed Chancellor of the Exchequer @HMTreasury. #Reshuffle pic.twitter.com/Z2RepjNHj2
— UK Prime Minister (@10DowningStreet) October 25, 2022
Investors are hopeful that, following the recent economic chaos and political infighting in the Conservative Party, Sunak will provide the certainty that markets need. This optimism is boosting the Pound against many of its peers.
However, wider optimism in global markets is offering some support to the risk-sensitive ‘Aussie’ Dollar. This limited GBP/AUD’s gains.
Original article continues below:
Pound Australian Dollar (GBP/AUD) Exchange Rate Gains as Political Uncertainty Abates
The Pound Australian Dollar (GBP/AUD) exchange rate strengthened this morning as UK bond markets continue to stabilise since Rishi Sunak won the Tory leadership contest.
At the time of writing, GBP/AUD is trading at around AU$1.7963, up over 0.5% from today’s opening levels.
Pound (GBP) Firms amid Stabilising Markets
The Pound (GBP) rose as today’s European session began as GBP investors are hopeful that Sunak’s premiership will restore political and financial stability in the UK.
Yesterday, Sunak won the Conservative leadership contest by default as the two other main candidates – Boris Johnson and Penny Mordaunt – withdrew from the race.
Today, Sterling seems to be reaping the rewards. Markets are relieved that the country has avoided a protracted leadership contest, and Sunak is seen as a safe pair of hands.
UK bond markets have recovered since it became increasingly clear that Sunak had won. This in turn will alleviate some of the pressure on the Treasury, making it easier for the UK government to balance the books and steer the country back from the brink of economic crisis.
Australian Dollar (AUD) Slips amid Commodities and Risk Pullback
Meanwhile, the Australian Dollar (AUD) is on the back foot this morning. While the risk-sensitive ‘Aussie’ gained ground overnight, a souring market mood is now putting pressure on AUD exchange rates.
Multiple concerns are dampening risk appetite in the global markets, including slowdowns in some of the world’s largest economies, the escalating Russia-Ukraine war, and fears of wider political and geopolitical tensions across multiple continents.
In addition, a pullback in the commodities markets dragged on the resource-linked Australian Dollar.
GBP/AUD Exchange Rate Forecast: Sunak Speech in Focus
Although UK optimism is supporting the Pound today, Sterling has become increasingly volatile in recent weeks. As a result, it’s possible we’ll see a sudden turnaround in GBP/AUD.
Later on, Rishi Sunak is expected to make his first speech as Prime Minister of the UK. Markets will be watching his speech carefully, looking for any hints about the direction he will take on fiscal policy.
Sunak faces a tough balancing act. Households and businesses are clamouring for more support amid the cost-of-living crisis. However, the public finances are in a dire state. If fiscal policy is too loose (as with Liz Truss’s mini-budget) government gilts could crash once again. If too tight, Sunak risks deepening the inevitable recession.
As for the ‘Aussie’ Dollar, Australia’s inflation rate is in focus. If inflation continues to rise, AUD could firm.