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GBP to AUD Exchange Rate Tumbles on Impressive Australian Growth Data

June 7, 2017 - Written by Toni Johnson

Despite investors generally confident in a majority win for the Conservative party in Thursday’s UK general election, uncertainty remains and this has allowed the Australian Dollar to easily push the Pound down this week.

Due to strong Australian data and an optimistic RBA, the GBP/AUD exchange rate had fallen from around 1.7322 to a low of 1.7068 by Wednesday. This was the pair’s lowest level since April.

The Pound’s losses have been limited this week as investors continue to bet that the Conservative party will win a comfortable majority in Thursday’s UK general election.

A Conservative majority would be Pound positive, as investors expect a strong public mandate to help give the government more breathing room in Brexit negotiations over the next two years.

However, despite this confidence polls continue to have highly varied results. Some show the Conservatives with a strong 11-point lead over the opposition Labour party, while others have them just one point ahead.

In the event the polls projecting a tighter race are the more accurate ones, this could lead to a ‘hung parliament’ – an event in which no party has won enough seats to form a majority government.

The possibility of this outcome has risen in recent weeks as the Conservatives polling figures drop and Labour’s popularity rises. In a race that previously had very little uncertainty, the sudden rise of a Pound-negative possibility has prevented Sterling from holding its ground over the last week.

A major part of GBP/AUD’s drops has been a surge in Australian Dollar demand however.

Wednesday saw the publication of Australia’s Q1 Gross Domestic Product (GDP) results, which beat expectations, even amid some concerns that they could print a surprise contraction.

Analysts forecast Australian growth would slow to 0.2% quarter-on-quarter and to 1.5% year-on-year. The figures came in at 0.3 and 1.7% respectively, impressing traders.

This also meant Australia had recorded 103 successive quarters of growth – a new global record.

The Reserve Bank of Australia (RBA) stated earlier in the week that even with quarterly variations, the bank still forecasts Australian growth to reach just above 3% over the next two years or so.

However, some analysts remain concerned that underlying weakness could persist following the slowdown in Q1. Some analysts have also argued that the RBA may not want to tighten Australian monetary policy until 2019.

Overall though, the Australian Dollar has enjoyed one of its best weeks in a while due to this growth news.

The Pound to Australian Dollar exchange rate could change course on Thursday though, following the results of the UK general election. A big Conservative majority would see GBP/AUD rise, while the pair could extend its lows in the event of a ‘hung parliament’.
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