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GBP to AUD Exchange Rate Rebounds despite Brexit Fears, as Reserve Bank of Australia Rate Cut Bets Rise

July 24, 2019 - Written by James Fuller

Despite persisting fears that Britain could be headed for a worst-case scenario no-deal Brexit outcome under a new government led by Brexiteer Boris Johnson, the British Pound to Australian Dollar exchange rate has seen a solid rebound this week so far. This has also been partially due to weakness in the Australian Dollar, which is falling on Reserve Bank of Australia (RBA) interest rate cut bets.

Last week saw no-deal Brexit bets drag the Pound lower once again, and GBP/AUD slumped from 1.7913 to 1.7758 throughout the week. GBP/AUD also briefly touched on a 2019 low of 1.7656 last week before its rebound.

GBP/AUD has been more strongly rebounding from those lows this week so far. At the time of writing on Wednesday, GBP/AUD had regained a good chunk of last week’s losses and trended closely to the level of 1.7905.

GBP Exchange Rates Rebound ahead of Boris Johnson Taking Office

Yesterday saw the Conservative Party leadership contest finally come to an end, and as was widely expected Brexiteer Boris Johnson comfortably won the contest.

Johnson won 66% of the vote from the Conservative Party membership base, a significant lead over his opponent Jeremy Hunt.

The result meant that Johnson would succeed Theresa May as Britain’s Prime Minister. He is expected to take office later today.

Investors piled into the Pound ahead of his tenure officially beginning however. This was due to a combination of factors, including some relief that the uncertainty of the leadership contest had come to an end.

This was despite many analysts speculating that a Boris Johnson government made the chances of a worst-case scenario no-deal Brexit becoming reality worse.

However, the British currency did find a little support after a vote of confidence from UBS Wealth Management.

The group predicted that no-deal Brexit fears had actually been overdone, and argued that the Pound will strengthen as a result.

According to Dean Turner and Daniel Trum, Economists at UBS Wealth Management’s UK office:

‘If, as we expect, Parliament forces Johnson to seek an extension to the October Brexit deadline, pound-dollar should start to rebound from the recent lows,’

Of course, the Pound also found it easier to advance due to broad weakness in the Australian Dollar.

AUD Exchange Rates Slump on Weak Data and RBA Rate Cut Speculation

The Australian Dollar was one of the more resilient major currencies last week, but the currency’s resilient streak may have come to an end this week.

Australian Dollar investors were largely unsurprised by last week’s underwhelming Australian data and speculation of another interest rate cut from the Reserve Bank of Australia (RBA).

However, this week’s news has surprised investors enough to cause markets to sell the Australian Dollar back from its recent highs in profit-taking.

The Australian Dollar’s losses were only exacerbated by fresh Australian data and Central Bank speculation today.

CommBank’s Australian PMI projections slowed in July, falling to 51 in most prints, putting them worryingly close to the 50 point mark between contraction and growth.

On top of this, Westpac Bank’s Chief Economist said overnight that he expected the RBA would cut Australian interest rates not just once more, but two more times.

With markets now speculating an even more dovish than previously expected Reserve Bank of Australia, the Australian Dollar plunged.

This made it easier for GBP/AUD to surge today. The Pound to Australian Dollar exchange rate was one of the day’s stronger Pound majors.

GBP/AUD Exchange Rate Forecast: UK Politics and RBA Remain in Focus

Not much major UK or Australian data will be published towards the end of the week, but as the Pound and Australian Dollar have been influenced by UK politics and Reserve Bank of Australia (RBA) news this week anyway, that is likely to continue.

Boris Johnson is set to officially become Prime Minister before the end of the day, at which point Pound investors will turn attention to how he forms his government cabinet, as well as the tone the government takes on Brexit plans.

Any surprising shifts in stance on Brexit from Johnson or his new government are most likely to cause Pound movement.

Australian Dollar investors, on the other hand, will remain focused on Reserve Bank of Australia interest rate cut bets.

Following the more dovish bets from Westpac bank, markets are more eagerly anticipating tomorrow’s upcoming speech from RBA Governor Philip Lowe.

If Lowe shows more signs that the RBA will become even more dovish, the Australian Dollar could be in for further weakness that could lead to more late-week Pound to Australian Dollar exchange rate gains.
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