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Pound Australian Dollar Exchange Rate News: GBP/AUD Stumbles as Labour Catching up in the Polls

November 26, 2019 - Written by John Cameron

Pound (GBP) Exchange Rates Undermined by Polling Figures

The Pound (GBP) has found itself on the back foot today in response to the latest opinion polls from the UK which point to Labour closing the gap with the Conservatives since the weekend.

Polls are currently showing the Tories have an 11 point lead over Labour down from an 18 point lead last week.

This has greatly increased the odds of next month’s election resulting in a hung parliament and has also increased the outside chance of Labour claiming pulling out a surprise win.

Despite a Labour campaigning on a promise to renegotiate a Brexit deal which keeps the UK more closely aligned with the EU as well as holding a second referendum with the option to remain, a Labour government is seen as less pro-business than the Conservatives.

Bill Diviney, senior economist at ABN AMRO explains:

‘A Conservative majority will also be positive for Sterling in the near-term as it reduces both political uncertainty and Brexit uncertainty in one go.

‘A Labour majority will likely lead to the smallest upside potential for Sterling, as investor expectations on the implementation of Labour’s agenda will dampen the positive impact on Sterling of a potential soft Brexit/Remain.’

Australian Dollar (AUD) Exchange Rates Buoyed as Lowe Suggests QE Currently Unnecessary

Meanwhile, the Australian Dollar (AUD) trended higher today following a speech by Reserve Bank of Australia (RBA) Governor Philip Lowe.

Speaking in Sydney earlier this morning, Lowe discussed in what circumstances the bank may resort to introducing unconventional monetary policy, particularly in regards to quantitative easing.

Lowe suggested that while a government bond purchasing programme is an option, it would not be considered until interest rates were lowered to at least 0.25%, a rate which he believes is unlikely to be achieved in the short-term.

Lowe said:

‘In my view, there is not a smooth continuum running from interest-rate reductions to quantitative easing. It is a bigger step to engage in money-financed asset purchases by the central bank than it is to cut interest rates.

The Governor’s speech came amid mounting speculation that the RBA would need to look more closely at unconventional policy as it runs of ammunition to boost employment and stoke inflation, something Lowe concedes could force the bank’s hand in the future.

Lowe adds:

‘In particular, if we were moving away from, rather than towards, our goals for both full employment and inflation, the purchase of government securities would be on the agenda of the board.’

The RBA will hold its next policy meeting in December, with economists currently predicting a 78% chance that the bank will cut rates again.

GBP/AUD Exchange Rate Forecast: Markets to Keep a Close Eye on US-China Trade Headlines

Looking ahead, movement in the Pound Australian Dollar (GBP/AUD) exchange rate through the mid-week may be closely aligned with US-China trade sentiment.

While recent headlines have proven mostly positive, with both US and Chinese officials reporting that a ‘phase 1’ trade deal is close, many AUD investors remain unconvinced, limiting any potential upside in the ‘Aussie’.

This is mostly due to Donald Trump’s apparent reluctance to rollback tariffs, with markets sceptical that the two sides will be able to resolve their differences and sign a deal before the end of 2019.

Meanwhile, with UK economic data looking pretty thin on the ground, GBP investors will likely remain firmly focused on the upcoming election.

Expect to see the Pound shed some more ground if polling data continues to show that Labour is catching up to the Tories.

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