GBP to AUD Exchange Rate Hits Weekly Worst but ‘Aussie’ Gains May Be Limited

September 26, 2019 - Written by Ben Hughes

STORY LINK GBP to AUD Exchange Rate Hits Weekly Worst but ‘Aussie’ Gains May Be Limited

Despite uncertainties over whether the Reserve Bank of Australia (RBA) will cut Australian interest rates next week or not, the British Pound to Australian Dollar (GBP/AUD) exchange rate has been tumbling this week. A combination of Brexit hopes and higher demand for trade-correlated currencies towards the end of the week has left the Pound weak, and the Australian Dollar is taking advantage of that for now.

Since opening this week at the level of 1.8434, GBP/AUD has been trending lower. While GBP/AUD attempted to hold its ground until yesterday, UK political and Brexit fears then worsened and the pair has since been tumbling even lower.

At the time of writing on Thursday, GBP/AUD trended near a weekly low of 1.8217. The Australian Dollar’s mixed outlook has not been enough to keep it from gaining against a tumbling Pound.

GBP Exchange Rates Slump amid Revived UK Political Chaos

Earlier in the week, the Pound saw a brief surge in demand, after Britain’s Supreme Court ruled that parliament had been unlawfully prorogued. The prorogation now null and void, parliament reopened yesterday.

However, market hopes that the events would lead to quick political developments and a possible solution on Brexit were short-lived, and were replaced by concern at seemingly deepening political tensions.

Today’s news headlines were dominated by stories about the tensions in parliament was UK Prime Minister Boris Johnson remained defiant despite his government’s defeat in the Supreme Court.

The extraordinary tensions left investors doubtful that any deal or compromise on Brexit could happen any time soon, worsening the perceived chance of a no-deal Brexit becoming reality if the Prime Minister remains defiant.

According to Michael Hewson, Chief Market Analyst at CMC Markets UK:

‘pretty much picked up where it left off, with MPs giving full vent to a range of emotions, some of them quite ugly,

If last night’s events are any guide, getting consensus for any kind of deal is going to be a very big ask, and probably impossible without a change of MPs, as both Labour and Conservative Party MPs traded insults, with Prime Minister Johnson goading Labour leader Jeremy Corbyn into calling a vote of no confidence in his government.’

As a result of the seemingly worsening political situation in Britain, uncertainties have risen and the Pound has become unappealing again.

AUD Exchange Rates Gain on Trade-Sentiment despite Reserve Bank of Australia (RBA) Speculation

The Australian Dollar saw solid demand against the Pound today, despite a lack of domestic support for the antipodean currency.

With the Reserve Bank of Australia (RBA) set to hold its anticipated October policy decision on Tuesday and market bets of an interest rate cut still mixed, some analysts are saying the ‘Aussie’ should be weaker.

According to Sean Callow, Analyst at Westpac, the bank still fully expects the RBA to cut interest rates next week:

‘Westpac has been calling for an Oct rate cut since late July and the focus on slack in the labour market in Governor Lowe’s speech leaves us quite comfortable with that call.

Along with the rate cut, we expect the statement to leave the door open for further easing. Our base case is for a Feb 2020 cut but rates markets are likely to nudge up the risk of a Dec move.’

However, the Australian Dollar has seen relatively sturdy movement today despite this.

The Australian Dollar is correlated to market shifts in risk and trade-sentiment, so it has benefitted strongly from the latest optimism towards US-China trade relations.

Market hopes for a US-China trade deal have risen since US President Donald Trump said that talks were going well and a deal could be closer than expected. As a result, AUD investors are brushing over RBA uncertainty for the time being.

GBP/AUD Exchange Rate Forecast: Politics and Reserve Bank of Australia (RBA) in Focus

As developments in Brexit and US-China trade relations dominate headlines again, the Pound to Australian Dollar exchange rate is likely to remain driven by these factors until the end of this week and into next week as well.

More days of chaos may be to be expected in UK Parliament, which could lead to fresh shocks in political and Brexit outlooks. Sterling is likely to remain volatile as a result.

The trade-correlated Australian Dollar, on the other hand, could see further strength if US-China trade relations improve as investors have been speculating recently.

However, investors may be hesitant to buy the Australian Dollar too much, amid anticipation for next week’s Reserve Bank of Australia (RBA) policy decision.

While bets on whether the bank will cut or freeze rates are mixed, this is especially likely to lead to jittery AUD movement.

The Pound to Australian Dollar exchange rate is more likely to be driven by Pound shifts than the Australian Dollar until the RBA decision becomes clear.

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TAGS: Pound Australian Dollar Forecasts