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Pound Australian Dollar (GBP/AUD) Exchange Rate Falls as Conservative Party Lead Narrows

November 26, 2019 - Written by John Cameron

Pound Australian Dollar (GBP/AUD) Exchange Rate Slides as Tory Lead Narrows

The Pound Sterling Australian Dollar (GBP/AUD) exchange rate edged lower, leaving the pairing trading at around AU$1.8976.

Sterling weakened against the Australian Dollar as further opinion polls revealed the Conservative Party’s lead against the opposition is narrowing.

Today, a poll by Kantar revealed that Labour is squeezing the Conservative’s lead from 18 points to 11 over the past week.

This was the second poll in two days which showed the Tory Party’s lead was narrowing as Monday saw ICM show Boris Johnson’s party retain a seven-point lead, down from 10 points last week.

However, many analysts have argued that Johnson’s Conservative Party is headed for a victory in 12th December despite recent polls.

Commenting on this, Lauri Hälikkä, SEB’s fixed income and FX strategist noted:

‘The Pound has strengthened as a reassuring Tory majority would mean that the risk of hard Brexit is small while avoiding political lock-ups in Parliament and getting a growth-oriented economic policy.

‘A Labour victory would certainly give a softer Brexit but also very radical socialist policies, which few believe would be good for the Pound.’

Australian Dollar (AUD) Rises as US and China Reach ‘Common Understanding’

On Monday, China’s Global Times said that the US and China were close to a ‘phase one’ trade deal which provided the ‘Aussie’ with a slight upswing of support.

Added to this, in a high-level phone call, China’s Vice Premier Liu He, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin attempted to hammer out final details of a preliminary deal.

Officials discussed ‘core issues of concern’ and the Chinese Commerce Ministry said they were able to reach ‘a common understanding on resolving relevant problems.’

Commenting on this, senior macro strategist at Nordea Asset Management, Sebastien Galy said:

‘China and [the] US agreed on a framework to resolve their phase one issue, which is just a way of saying that they did admin work.’

However, this did little to buoy the Australian Dollar as officials from both Beijing and Washington said that a more ambitious ‘phase two’ trade deal is looking less likely.

RBA Lowe: Bank Unlikely to Use QE or Negative Interest Rates

On Tuesday, Reserve Bank of Australia’s (RBA) Governor, Philip Lowe said that he did not expect to have to use quantitative easing (QE).

Added to this, Governor Lowe ruled out negative interest rates, calling the implementation ‘extraordinarily unlikely’ and said he saw no need for the bank to provide extra liquidity to the financial system.

This provided the 'Aussie' with an upswing of support, and speaking at an economists’ dinner, Lowe said:

‘The threshold for undertaking QE in Australia has not been reached, and I don’t expect it to be reached in the near future.

‘There may come a point where QE could help promote our collective welfare, but we are not at that point and I don’t expect us to get there.’

Pound Australian Dollar Outlook: Will Election Optimism Buoy GBP?

Looking ahead to this evening, the Australian Dollar (AUD) could slide against the Pound (GBP) following the release of Aussie construction data.

If construction work done slumps further than expected in the third quarter, ‘Aussie’ sentiment will be left dampened.

Meanwhile, Sterling could rebound on election optimism if markets believe a there will be a Conservative majority in next month’s election.

If polls reveal the Tories are able to hold onto their lead, the Pound Australian Dollar (GBP/AUD) exchange rate will rise.

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