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Pound Sterling Australian Dollar GBP AUD Exchange Rate Forecast Hinges on Australian General Election Result

July 4, 2016 - Written by Frank Davies

The Pound has been performing poorly today, on account of confidence in the UK's economy crashing massively.

Tense vote counting will be the likely pastime in Australia for the near-term, at least, as the groups fighting for leadership of the country struggle to make some kind of majority against their rivals.

Political Fallout from Brexit Predicted to Continue to Dominate Trader Focus

Unresolved political issues following last month’s UK European Union Membership referendum are expected to continue to dominate the thoughts and deeds of currency market participants this week.

However, the UK is by no means the only major developed economy grappling with electoral uncertainty; Australia’s weekend General Election has thrown up more questions than answers, with another election now considered a possibility for later in the year. With this as a backdrop, our leading analyst takes a look at the forecast for the Pound Sterling Australian Dollar exchange rate below GBP AUD …

Australia's Federal Election Result Reduced AUD Exchange Rate Appeal

The Australian Dollar (currency : AUD) has pummelled the Pound Sterling (currency : GBP) in the aftermath of the UK’s vote for Brexit, sending the Pound Aussie exchange rate down from close to the two to one threshold into the 1.7700s, as of Friday night’s weekly currency market shutdown. However, a large portion of these gains are now in jeopardy following an indecisive Australian General Election, held over the weekend.

Prime Minister Malcolm Turnbull’s Liberal Party held some 90 of the 150 seats in the nation’s lower house when Australian voters went to the polls on Saturday 2nd July. However, early indications are that this number will be greatly reduced after the nation’s electorate turned their backs on Turnbull. With the result poised on a knife edge, the most likely outcome of the popular ballot now appears a hung parliament, adding the problem of a lack of clear leadership to Australia’s existing economic difficulties of historically soft commodities prices and slowing Chinese demand.

The potential exists that the Reserve Bank of Australia (RBA) will respond to this potentially hazardous cocktail of domestic and exogenous conditions by announcing a snap interest rate cut at the conclusion of its latest monetary policy meeting, early tomorrow morning.

The general consensus amongst analysts is that the RBA’s policy committee will opt to sit on their hands this month and maintain interest rates at their current level of 1.75%, meaning that a rate cut would trigger a strong move against the Aussie. Such an outcome is predicted to send the Pound Aussie exchange rate back up towards the 1.9000 GBP AUD threshold.

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