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Best Australian Dollar to Pound Exchange Rate of 3 Weeks as FED Dovishness Boosts Risk-Sentiment

January 10, 2019 - Written by Toni Johnson

A combination of Brexit uncertainties and rising risk-sentiment has made the British Pound to Australian Dollar (GBP/AUD) exchange rate unappealing this week. The Pound is also unlikely to find much strength in the coming days, as investors highly anticipate a UK Parliament vote on Brexit set to be held next week.

Since the beginning of the year, GBP/AUD has been tumbling as market demand for risky currencies rises and the Brexit outlook continues to keep pressure on Sterling.

GBP/AUD fell over a cent, from 1.8028 to 1.7877 last week. This week could turn out to be more of the same, as GBP/AUD trended closely to a three week low of 1.7720 at the time of writing today.

Pound Sterling Exchange Rates Unappealing as UK Government’s Position on Brexit Appears Weakened

Pound investors are still hotly anticipating next week’s UK Parliament vote on UK Prime Minister Theresa May’s long-negotiated UK-EU Brexit withdrawal deal. Anticipation for this vote and how it may turn out are driving Pound movement.

For example, as the debate on the Brexit withdrawal bill resumed this week, amendments over how the Brexit process may proceed following the vote have influenced Sterling.

On Tuesday, UK Parliament voted against the UK government in favour of an amendment that will limit the UK government’s funding options in the event that it seeks out a ‘no-deal Brexit’.

However, as this did little to stop the reality that a ‘no-deal Brexit’ is still possible, the Pound’s support following the vote was limited.

The Pound became even less appealing on Wednesday evening and Thursday, as UK Parliament voted for an amendment to force the UK government to present a ‘Plan B’ within days in the event that the Brexit bill fails to pass next week.

The amendment has been perceived as weakening the UK government’s control and influence over the Brexit process.

Essentially, Brexit uncertainty has deepened further this week as the UK government is still perceived as not having enough support to pass the bill in next Tuesday’s vote.

However, it isn’t all doom and gloom. Investors are increasingly betting that the UK will be forced to delay the formal Brexit date.

If this happens, markets will perceive a little more breathing room in Brexit negotiations and this would be a slight relief to investors – at least until time runs out again.

Australian Dollar Exchange Rates Climb on Global Risk-On Rally

Demand for the Australian Dollar has been strongly supported by global market factors this week, despite a lack of strong domestic support for the currency.

This week’s Australian data has been disappointing, with Australian imports, services PMI stats and building permits figures all falling short of expectations.

However, investors have been piling into the risky trade-correlated Australian Dollar due to stronger appetite for risk-taking.

US-China trade negotiations appear to be going smoothly, bolstering hopes that there will be further de-escalation in a trade war and perhaps even a trade deal.

On top of this, the Federal Reserve’s latest meeting minutes, published on Wednesday evening, showed that many Fed policymakers were actually more dovish than expected despite the Fed’s surprisingly hawkish tone in December.

Overall, the weaker Federal Reserve interest rate hike bets and US-China trade hopes bolstered risk-sentiment and left the Australian Dollar stronger.

GBP/AUD Exchange Rate Forecast: Australian Ecostats and Brexit Developments in Focus

The Australian Dollar’s strength so far this week has been more due to risk-sentiment and weakness in the US Dollar (USD) than any domestic support for the Australian Dollar.

In fact, much recent Australian data has been underwhelming, so the Australian data due for publication during Friday’s Asian session could cause the Pound to Australian Dollar exchange rate to fall even lower if it impresses.

Australian construction PMI data from AIG will be published, followed by NAB’s Australian business confidence survey and November’s retail sales results for the nation.

If the data beats expectations it could help give the ‘Aussie’ stronger domestic support and leave the currency even more appealing. Weaker data could make it easier for GBP/AUD to recover from its lows however.

Pound investors, on the other hand, are more likely to react to Brexit developments than UK data. Friday’s UK growth and production stats may take a backseat with investors highly anticipating next Tuesday’s UK Parliament vote on Brexit.

Any surprising Brexit developments or shifts in risk-sentiment before the end of the week are most likely to cause Pound to Australian Dollar exchange rate movement.
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