Pound Australian Dollar (GBP/AUD) Exchange Rate Volatile as Markets Brace for Johnson’s Brexit Plan Reveal

October 2, 2019 - Written by Frank Davies

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Volatile as Markets Brace for Johnson’s Brexit Plan Reveal

Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Softens in Anticipation of Johnson’s Brexit Proposal

With EU officials widely expected to reject Boris Johnson’s ‘final offer’ on Brexit the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate remained under pressure.

As supposed leaks of Johnson’s proposal for the Irish border have already faced rejection the potential for any imminent deal appears decidedly limited.

As analysts at Deutsche Bank commented:

‘The Irish finance minister has already been quoted as saying that if this is the plan then “that in itself is bad faith”. So today could be the beginning of the end for any hopes of a deal ahead of the EU council meeting in two weeks.’

With less than a month now remaining before the current Brexit deadline the increased odds of a no-deal scenario or a fresh extension look set to limit the appeal of the Pound.

Prospect of Further RBA Interest Rate Cuts Keeps AUD Exchange Rates Under Pressure

In the wake of the Reserve Bank of Australia’s (RBA) interest rate cut support for the Australian Dollar weakened.

The risk of the RBA cutting rates to a fresh record low in the months ahead limited the potential for AUD exchange rates to return to a positive footing.

Increasing concerns over the health of the global economic outlook put additional pressure on the Australian Dollar after the World Trade Organisation (WTO) lowered its growth forecasts.

With the WTO now expecting trade volumes to grow by just 1.2% in 2019, as opposed to the 2.6% it had forecast earlier in the year, the mood towards the risk-sensitive Australian Dollar soured.

Underwhelming UK PMIs Limit Pound Sterling (GBP) Demand

After the disappointing nature of September’s UK manufacturing and construction PMIs worries over the health of the economy look set to limit the appeal of the Pound.

Fears of an accelerated slowdown in economic growth could pick up further on the back of Thursday’s UK services PMI release, given the sector’s significant role in driving economic activity.

Although forecasts point towards the index holding relatively steady at 50.3, showing a narrow expansion in activity on the month, the potential for a downside surprise remains.

If the services PMI follows the manufacturing and construction indexes into a state of contraction, however, this could weigh heavily on the GBP/AUD exchange rate.

Any drop in service sector activity could raise the risk of the UK economy reporting negative growth in the third quarter, heralding a technical recession as the uncertainty surrounding Brexit bites.

Slowing Australian Trade to Add to AUD Exchange Rate Weakness

The GBP/AUD exchange rate could benefit from the latest set of Australian trade data, however, as forecasts point towards fresh signs of weakness.

A sharp narrowing of the headline trade surplus could weigh heavily on the Australian Dollar, particularly if the decline is driven by softer export volumes.

Evidence that deteriorating global trade conditions are dragging on the Australian economy could put a fresh dampener on AUD exchange rates as worries over the 2020 outlook pick up.

On the other hand, if the Australian economy can deft the wider deterioration in trade this may give Australian Dollar exchange rates a solid rallying point as the odds of further RBA policy action ease.

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TAGS: Pound Australian Dollar Forecasts