February 25, 2019 - Written by Minesh Chaudhari
STORY LINK GBP to AUD Exchange Rate Sheds Half a Cent amid Risk-On Rally
The latest developments in US-China trade negotiations, combined with market uncertainty regarding how the Brexit process will unfold, made the British Pound to Australian Dollar (GBP/AUD) exchange rate tumble today. The Pound’s losses were limited though, by rumours that the Brexit process could be delayed for as long as two years.
Due to poor Australian news, GBP/AUD spent most of last week climbing and surged from the week’s opening level of 1.8050 to close at the level of 1.8311. GBP/AUD briefly touched on a February high of 1.8443 on Thursday but was unable to hold near those best levels.
Today, a rise in market demand for riskier trade-correlated currencies left GBP/AUD tumbling further from those highs. GBP/AUD was trending over -0.40% lower at the time of writing and was on track to lose over half a cent throughout the day. At the time of writing, GBP/AUD trended close to the level of 1.8218.
GBP/AUD’s losses today were largely due to higher risk-sentiment, driving trade-correlated currencies like the Australian Dollar higher.
GBP Exchange Rate Losses Limited on Rumours UK Government May Delay Brexit
After Pound demand was hit over the weekend by news that the UK government had delayed its meaningful Parliament Brexit vote until the 12th of March, the British currency found some support on the back of fresh speculation today.
As the Brexit process comes down to the wire and there are no signs of an outcome being reached, the UK government is under deeper and deeper pressure to formally delay the official Brexit date.
The Brexit date is still set for the 29th of March, but speculation has risen that the UK government is considering a delay.
Fresh reports also indicated that the EU was prepared to offer a two year delay to the formal Brexit date. This delay would essentially replace the tentative Brexit transition period and run through until 2021 to allow for complete negotiations.
This outcome would come as a relief to Pound investors fearing a No-deal Brexit, so the Pound advanced today.
According to Ulrich Leuchtmann, Head of FX Research at Commerzbank, the possibility of Brexit amendments in Parliament are also supporting Sterling:
‘I expect GBP appreciation if May loses the ability to put pressure on MPs (Members of Parliament) by threatening a no-deal scenario,’
AUD Exchange Rates Advance as US-China Trade Talks See Extension
An ongoing freeze on US-China trade tariffs was on track to end on the 1st of March, but due to progress in US-China trade negotiations investors had been hoping that the freeze could be extended.
UK President Donald Trump announced over the weekend that the freeze on tariffs would indeed be extended. It is unclear how long the delay will be, but the news indicated to investors that a US-China trade deal of sorts was in sight.
With hopes rising that a US-China trade deal is in sight, global market jitters lightened further as has been a common trend in recent weeks. This made investors even more willing to take risks, and the relatively risky trade-correlated Australian Dollar climbed.
According to analysts from Citi:
‘Even as we wait for details of the agreement, the anxiety is likely to ease and encourage bullish risk exposure in general,’
GBP/AUD Exchange Rate Forecast: Risk-Sentiment Could Push GBP/AUD Lower
The Australian Dollar continued its rebound from last week’s lows, but there may still be further gains ahead for the risky trade-correlated ‘Aussie’.
If US-China trade negotiations continue to go well, or if there are other developments that make investors more willing to take risks, the Pound to Australian Dollar exchange rate could shed more of last week’s gains.
The tone that Federal Reserve
Chairman Jerome Powell takes in testimonies to US Congress this week could also influence risk-sentiment.
Investors would find the Australian Dollar even more appealing if upcoming Australian data impresses markets and offers fresh support.
Australian construction work data from Q4 will be published during Wednesday’s Asian session, with housing data and private sector credit stats due later in the week.
The Pound is unlikely to be influenced much by upcoming UK ecostats, and Brexit developments are more likely to remain in focus particularly with rumours of delays to the Brexit process hitting headlines today.
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TAGS: Pound Australian Dollar Forecasts