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GBP to AUD Exchange Rate Remains Near 2019 Worst despite Sterling’s Recovery Attempt

July 19, 2019 - Written by Ben Hughes

While the Pound saw a strong rebound from its worst levels against many major currencies towards the end of the week, the British Pound to Australian Dollar (GBP/AUD) exchange rate’s recovery was limited. The Australian Dollar remained relatively resilient despite Reserve Bank of Australia (RBA) interest rate cut bets, as the latest Australian data has not had much impact on Australia’s economic outlook.

After opening this week at the level of 1.7913, GBP/AUD plunged and spent the rest of the week lower. On Tuesday, GBP/AUD briefly touched on a low of 1.7648, which was the pair’s worst level all year – since December 2018.

Since then, GBP/AUD has been edging higher in recovery. Its gains have been limited due to resilience in the Australian Dollar, and it had only recovered to around 1.7745 by Friday.

The latest Australian data was disappointing and the Reserve Bank of Australia (RBA) has indicated that it could keep cutting Australian interest rates. However, as rate cut bets have not changed much despite this, the Australian Dollar wasn’t weakened much.

GBP Exchange Rates Recovery Limited as No-Deal Brexit Fears Persist

At the beginning of the week, speculation that Britain’s next Prime Minister could lead Britain towards a no-deal Brexit continued to mount, and the Pound had something of a reality check.

Investors sold the Pound en masse in reaction to rising no-deal Brexit bets.

Frontrunner to be Britain’s next Prime Minister, Boris Johnson, indicated he would not accept any Brexit deal that included an Irish backstop plan, and speculation also rose that he could close Parliament in October in order to force through a no-deal Brexit.

However, investors bought the Pound back from its worst levels in profit-taking in the second half of the week, and Sterling’s recovery was further supported by domestic data and political developments towards the end of the week.

Britain’s latest retail sales results beat market expectations, and UK Parliament made fresh efforts to prevent a no-deal Brexit from being forced through.

Still, despite hopes that a no-deal Brexit could be prevented, no-deal Brexit fears are still much higher than they were a few weeks ago, and this is keeping pressure on the Pound’s potential to gain.

AUD Exchange Rates Resilient as Australian Data Does Little to Impact Outlook

The Pound’s rebound against the Australian Dollar towards the end of last week was weaker than that seen against other major currencies like the US Dollar (USD) and Euro (EUR), and this has been largely due to the Australian Dollar’s own resilience.

Investors kept buying the Australian Dollar, even after the Reserve Bank of Australia’s (RBA) latest meeting minutes report indicated that the bank was prepared to cut Australian interest rates further if necessary.

While the Australian Dollar’s bullishness lightened a little towards the end of the week, it was still able to avoid major losses against a recovering Pound, even as Australia’s June job market report fell short of expectations in some prints.

This was because while the RBA indicated that it could keep cutting interest rates, many analysts and investors had already been speculating that this would happen.

As a result, the latest RBA news and weak Australian data was not seen as having a significant impact on RBA interest rate cut bets.

Analysts perceived the Australian job stats as not being bad enough to put short-term pressure on the RBA either. According to Kaixin Owyong from the NAB:

‘The data gives the RBA room to stay on hold in August,

It will likely prefer to see what impact recent cash rate cuts and income tax cuts have on the economy.’

GBP/AUD Exchange Rate Forecast: Central Bank Speculation to Influence Movement

Demand for the Pound will likely continue to be influenced by UK politics next week, as the Conservative Party leadership contest will reach its conclusion.

If Boris Johnson wins the contest as expected, markets will be increasingly focused on his comments and stances on Brexit going forward.

This will keep pressure on the Pound, which has already had its gains capped by no-deal Brexit fears.

With Pound remaining under pressure on domestic politics, the Australian Dollar may be more likely to influence GBP/AUD movement if upcoming Australian news influences Reserve Bank of Australia (RBA) interest rate cut bets.

Wednesday will see the publication of Australia’s July PMI projections from CommBank, and a Thursday speech from RBA Governor Philip Lowe could be particularly influential.

Of course, any surprising developments in US-China trade relations or Federal Reserve interest rate cut bets could also influence the Pound to Australian Dollar exchange rate next week.
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