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GBP to AUD Exchange Rate Recovers as Reserve Bank of Australia Rate Cut Bets Return

November 8, 2019 - Written by Ben Hughes

Despite trending lower for most of this week, and briefly seeing a slump yesterday, the British Pound to Australian Dollar (GBP/AUD) exchange rate has rebounded from its lows today and ultimately hasn’t seen huge losses this week after all. Demand for the Pound has been limited amid political uncertainty, but the Australian Dollar has seen big shifts in movement this week which have driven exchange rate movement.

After opening this week at the level of 1.8710, GBP/AUD has spent the week trending with a downside bias due as the Australian Dollar capitalised on mixed Pound movement.

GBP/AUD was almost on track to have lost around a cent and a half as it touched on a three week low of 1.8550 overnight, but after hitting those lows the pair has been recovering.

While GBP/AUD continues to trend below the week’s opening levels, it has recovered most of its losses amid fresh Australian Dollar weakness, and at the time of writing was trending closer to the level of 1.8673.

GBP Exchange Rates Benefit from Rival Weakness despite Uncertainty

The Pound has seen mixed performance all week, and has lacked fresh support as investors focus on Britain’s 2019 General Election race.

The election, still over a month away, is expected to see a win for the ruling Conservative Party which is being perceived as boosting the chances of a relatively soft Brexit.

However, uncertainty about the possibility of other election outcomes is weighing on the British currency, preventing it from continuing to climb on softer Brexit hopes.

On top of this, the Bank of England (BoE) surprised investors yesterday as policymakers were unexpectedly split on UK monetary policy.

A couple of policymakers voted to cut UK interest rates, causing BoE interest rate cut bets to rise and potentially boosting the market focus on UK ecostats. According to Thu Lan Nguyen, FX Strategist at Commerzbank:

‘This should at least limit the appreciation potential of the Pound over the medium to long term, but still the general direction of Pound exchange rate will be determined by the general election,’

However, despite these factors weighing on Sterling, it continues to benefit from hopes that a general election makes a no-deal Brexit less likely.

As the Pound is holding its ground, this has made it easier for the British currency to gain on tumbling rivals, such as the Australian Dollar today.

AUD Exchange Rates Shed Gains on Fresh RBA and Trade Jitters

Most of the Pound to Australian Dollar exchange rate’s movement this week has been driven by Australian Dollar movement.

The Australian Dollar saw a jump in demand at the beginning of the week as the Reserve Bank of Australia’s (RBA) latest monetary policy decision appeared to signal that a December interest rate cut was unlikely.

On top of this, the ‘Aussie’ benefitted for most of the week from hopes that US-China trade relations were improving and that a preliminary trade deal could secured soon.

However, many of these hopes unravelled on Friday.

The RBA published fresh comments today, in which the bank expressed concerns about wages which it ‘no longer expected to pick up’, as well as expectations for slow inflation.

The bank also expressed concern about the possibility of low interest backfiring, though it still signalled it will continue to cut rates next year.

A more dovish RBA knocked the Australian Dollar lower for most of Friday, but the ‘Aussie’ also weakened on news that US President Donald Trump was not as willing to row back US-China tariffs as hoped.

Friday comments from Trump caused fresh concern that a US-China trade deal may still be a ways away, and kept pressure on the trade-correlated Australian Dollar before markets closed for the week.

GBP/AUD Exchange Rate Forecast: Australian Job Stats to Drive RBA Bets

With Bank of England (BoE) and Reserve Bank of Australia (RBA) easing speculation on the rise again, the Pound to Australian Dollar exchange rate may be influenced more by data in the coming week.

Slews of UK data will be published throughout the week, with growth due on Monday, job stats on Tuesday, inflation on Wednesday and retail sales on Thursday.

If these stats disappoint investors, BoE interest rate cut bets could rise and the Pound could see fresh weakness. Stronger data could offset BoE speculation and help the Pound to hold its ground though.

The Australian Dollar is likely to be more volatile, with markets heavily focused on upcoming Australian wage and job market data due later in the week.

The RBA remains focused on job stats, so if these beat forecasts it could lead to softer RBA interest rate cut bets and a stronger ‘Aussie’.

Of course, the Pound’s biggest focus continues to be politics, especially developments regarding December’s upcoming general election.

Any developments in UK election news or US-China trade relations will continue to be major influences in the Pound to Australian Dollar exchange rate next week.
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