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GBP to AUD Exchange Rate Reaches 4-Month-Best on Brexit and Reserve Bank of Australia (RBA) Bets

September 20, 2019 - Written by Toni Johnson

Despite persisting concerns about the possibility of a worst-case scenario no-deal Brexit, and a lack of solid support for the Pound this week, the British Pound to Australian Dollar (GBP/AUD) exchange rate has been climbing solidly almost all week. Speculation that a softer Brexit is becoming more likely, as well as rising Reserve Bank of Australia (RBA) interest rate cut bets, have helped the pair to more easily sustain impressive gains.

Since opening this week at the level of 1.8180, GBP/AUD briefly dipped before seeing almost solid gains from Monday evening onwards. At the time of writing on Friday, GBP/AUD trended near a high of 1.8483, which was the best level for the pair in four months, since May.

While GBP/AUD has slipped slightly from those best levels, it still trends near the level of 1.8466 at the time of writing and is on track to sustain over two cents in gains throughout the week.

GBP Exchange Rates See Overnight Surge Following Juncker’s Brexit Comments

The Pound has seen another fairly bullish week overall, despite the week’s poor UK ecostats as well as lingering fears that Britain could still be headed for a no-deal Brexit.

For most of the week, speculation that the UK government was becoming more likely to aim for a relatively soft Brexit supported Sterling.

Investors hoped that the Pound would resume the rally it saw last week and as a result were hesitant to sell the currency throughout the week.

Eager to keep driving the Pound higher, investors bought the British currency in response to some comments made last night by European Commission President Jean-Claude Juncker.

Juncker said he was doing everything he could to reach a deal on Brexit, and implied the EU was willing to replace the Irish backstop if Britain’s government offered workable alternatives.

Still, some analysts urged caution about the Pound’s gains, predicting that they may not last. According to Han Tan, Analyst at FXTM:

‘Markets are at risk however of reading too much into Juncker's comment, and it remains to be seen whether the pound can push on from current levels,

Should Juncker's perceived optimism over a Brexit deal be found wanting and the UK-EU impasse become evident once again, the Pound may very easily unwind recent gains and falter back towards the 1.20 mark against the dollar.’

AUD Exchange Rates Tumbling as Reserve Bank of Australia (RBA) Interest Rate Cut Bets Rise

At the beginning of the week, Australian markets had been speculating that the Reserve Bank of Australia (RBA) would avoid taking a more dovish stance on Australian monetary policy.

However, by the end of the week, speculation was already rising that the RBA could cut Australian interest rates not just once more but twice more before the end of the year.

Due to some surprisingly dovish meeting minutes from the RBA, as well as news that Australia’s key unemployment rate had risen as expected, analysts are ramping up expectations for RBA easing.

The National Australia Bank (NAB) now predicts that the RBA will cut Australian interest rates once in October and again in December. According to Gareth Spence, Senior Economist at NAB:

‘We previously anticipated some further support from fiscal policy but now believe this is unlikely in the near term,

With monetary policy involving longer lags, we think the urgency to lower rates sooner has increased.’

Due to a combination of rising RBA rate cut bets and global trade jitters, the Australian Dollar has easily fallen this week.

GBP/AUD Exchange Rate Forecast: Comments from RBA Governor May Influence Rate Cut Bets

Next week’s UK and Australia economic calendars are looking a little quieter.

The only notable datasets due for publication are CommBank’s Australian PMI projections, UK public sector net borrowing, and the Confederation of British Industry’s (CBI) latest factory and retail stats.

However, a speech expected from Reserve Bank of Australia (RBA) Governor Philip Lowe on Tuesday could influence RBA speculation and Australian Dollar movement.

Some analysts speculate that Lowe could use the speech to signal that the bank will cut Australian interest rates in its October policy decision.

As a result, if Lowe avoids taking a dovish stance at the speech, the Australian Dollar would see a surge in demand.

Of course, other ongoing factors such as Brexit developments and US-China trade tensions will also continue to drive the Pound to Australian Dollar exchange rate next week.
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