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Pound Australian Dollar (GBP/AUD) Exchange Rate Moves Lower as UK Borrowing Figures Disappoint

June 21, 2019 - Written by Frank Davies

Disappointing UK Borrowing Figures Dent Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate



May’s UK public sector net borrowing data helped to drive the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate down ahead of the weekend.

As borrowing clocked in at 5.1 billion, roughly a billion higher than forecast, this left investors with little incentive to buy into the Pound on Friday.

With the Conservative leadership contest down to its last two candidates the risk of a no-deal Brexit has continued to hang over the economic outlook, meanwhile.

As the odds still favour hard-line Brexiteer Boris Johnson to succeed Theresa May markets have maintained a cautious view of the Pound.

Escalating US-Iran Tensions Limit Australian Dollar (AUD) Support



Although June’s Australian manufacturing and services PMIs both saw an improvement on the month, however, the strength of the Australian Dollar still proved limited on Friday.

While the PMIs pointed towards greater resilience within the domestic economy the Australian Dollar came under pressure thanks to a general deterioration in global market sentiment.

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Fears that the US and Iran are on a collision course after the downing of a US drone weighed heavily on the risk-sensitive AUD.

Until anxiety in the Middle East starts to ease AUD exchange rates could remain biased to the downside, in spite of the heightened odds of a Federal Reserve interest rate cut.

Further Dovish RBA Comments May Weigh Down AUD Exchange Rates



Comments from Reserve Bank of Australia (RBA) Governor Philip Lowe could provoke additional volatility for the Australian Dollar next week.

As Lowe is likely to maintain a dovish stance, highlighting the odds of a fresh interest rate cut, this may deter investors from buying back into the Australian Dollar on Monday.

With central banks around the world also moving towards a monetary loosening bias, however, there is a risk that the ultimate impact of any dovish commentary could prove limited.

Analysts at ANZ noted:

‘We are concerned that the global evolution of monetary policy may mean the AUD struggles to move lower. In which case the RBA may be forced to lower the cash rate below the 0.50–0.75% level that most analysts have assumed is the likely bottom, including ourselves.’


GBP Exchange Rates Vulnerable to Political Developments



As the Conservative leadership contest continues to unfold the potential for GBP exchange rate gains looks limited.

Unless markets see hopes of a swing towards a softer form of Brexit, or at least an October deal, the appeal of the Pound is unlikely to see any particular recovery.

Tuesday’s CBI reported retail sales index could also put pressure on the GBP/AUD exchange rate if it continues to slide deeper into negative territory.

Without signs of greater economic resilience the case for a Bank of England (BoE) interest rate hike looks set to diminish further, to the detriment of Pound Sterling.
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