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New Best GBP to Australian Dollar Exchange Rate Since Brexit Referendum on Weak Australian Growth Stats

March 6, 2019 - Written by Toni Johnson

Despite fresh Brexit uncertainties in the past few days, the British Pound to Australian Dollar (GBP/AUD) exchange rate saw a surge in demand today that saw it trending near its best levels since 2016’s EU Referendum. This was largely due to an Australian Dollar selloff, as investors reacted to a disappointing slowdown in Australian growth.

After last week’s impressive surge from 1.8315 to 1.8660, GBP/AUD has been able to keep climbing thanks to fresh weakness in the Australian Dollar. GBP/AUD briefly slipped yesterday but has since regained all of those losses.

At the time of writing on Wednesday afternoon, GBP/AUD was trending near a high of 1.8738 – the best GBP/AUD level in over two years since the EU Referendum in mid-2016.

Investors sold the Australian Dollar following the publication of Australia’s disappointing growth stats, combined with market risk-sentiment. The Pound may have seen even stronger gains if not for the latest Brexit uncertainties though.

GBP Exchange Rate Gains Limited by Concerns of Prolonged Brexit Uncertainty

While fears of a worst-case scenario no-deal Brexit have lightened in recent weeks and this has led to a surge in Pound demand, there is still uncertainty over how exactly Brexit will unfold.

Hopes that the UK government’s soft Brexit plan could pass through Parliament due to stronger domestic support briefly bolstered Sterling demand.

However, fresh doubts that there will be enough support for the bill to pass have emerged over the last day or so and this has limited the Pound’s potential for further gains.

A lack of signs that the UK and EU will reach a breakthrough in talks means that the UK government is unlikely to get much additional support from critics in the ruling Conservative Party.

The opposition Labour Party has also indicated that only a few Labour MPs would vote in favour of the deal.

As a result, analysts doubt the soft Brexit deal will pass next week. While this will likely lead to the Brexit process being delayed, analysts point out that a delay, while relieving, doesn’t solve much.

According to Esther Maria Reichelt, FX Strategist at Commerzbank:

‘Even if a no-deal Brexit is taken off the agenda next week, the uncertainty of what would happen in case of a postponement remains. Pound traders cannot ignore this fact ... things remain tense for sterling,’

AUD Exchange Rates Plummet as Australian Growth Nears Stagnation

Market demand for risky trade-correlated currencies like the Australian Dollar has been a little weaker this week, as China has cut its growth forecasts and there have been no fresh developments in US-China trade negotiations.

However, the Australian Dollar was still able to edge higher versus a weakened Pound – until today’s Australian data sent the ‘Aussie’ tumbling.

Published during the Asian session, Australia’s Q4 Gross Domestic Product (GDP) growth rate results fell short of expectations in both major prints.

Australian growth was expected to remain at 0.3% quarter-on-quarter but instead slowed to just 0.2%. Australia’s yearly figure was even more disappointing, slowing to just 2.3% rather than the expected 2.5%.

Due to deepening signs of slowdown in Australia, investors ramped up bets that the Reserve Bank of Australia (RBA) could cut Australian interest rates sometime this year and this weighed heavily on the Australian Dollar.

GBP/AUD Exchange Rate Forecast: Could Australian Retail Data Offer some Support?

Poor Australian growth stats could weigh on the ‘Aussie’ for the remainder of the week, as investors bet that the Reserve Bank of Australia (RBA) could cut Australian interest rates at some point in the year.

However, if upcoming Australian data from January beats market expectations it could make investors a little more confident that Australia’s economic activity has improved since the end of last year.

Australian construction PMI stats for February, trade balance data from January and January retail sales results will all be published during Thursday’s Asian session, and could offer the Australian Dollar some support if they impress.

These will be this week’s last remaining influential ecostats, at least where GBP/AUD is concerned.

Political news could still have a strong impact on the Pound to Australian Dollar exchange rate though, particularly if there are any developments in Brexit or US-China trade negotiations in the coming sessions.
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