Pound Australian Dollar (GBP/AUD) Exchange Rate Falls on Election Jitters

December 12, 2019 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Falls on Election Jitters

Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Slumps as GBP Volatility Jumps

The Pound Sterling Australian Dollar (GBP/AUD) exchange rate slumped on Thursday, as UK voters headed to the polls. The pairing is currently trading at around AU$1.9095.

British voters headed to the polls on Thursday, for an election that could either see Prime Minister Boris Johnson take the UK out of the European Union by the end of January, another referendum or the decision to leave the bloc reversed.

Investors continued to remain optimistic that the Prime Minister would be able to secure a majority, which kept the Pound near recent highs.

However, YouGov’s poll sent jitters through markets as it showed the gap between the Conservatives and Labour narrowed sending GBP lower against the 'Aussie'.

The pollsters now predict the Prime Minister will be able to secure a narrow majority, and that they could not rule out the possibility of a hung parliament.

Commenting on this, Rachel Winter, associate investment director at Killik & Co stated:

‘At the moment, I still think Conservative majority is the most likely option despite the reduction in Sterling, that does still seem to be the option that markets are still pricing in.

‘But having said that, I don’t think anyone will be surprised to see a hung parliament.’

Australian Dollar (AUD) Rallies Following Fed Rate Decision

The Australian Dollar rallied on Thursday as the US Federal Reserve left interest rates on hold in December.

However, in comparison, the Reserve Bank of Australia (RBA) has its cash rate at a record low level and is expected to fall lower by February 2020.

Meanwhile, trade tensions remained in focus with reports revealing the US and China were in close communication.

China’s commerce ministry announced on Thursday that trade talks are still progressing, which likely provided the risk-sensitive ‘Aussie’ with a boost.

But the ministry declined to comment on the possibility of upcoming US tariffs, and any retaliatory measures the country would take.

AUD Rallies Ahead of High-Stakes US-China Tariffs Meeting

The ‘Aussie’ rose against the Pound as reports showed there was a high-stakes meeting planned for later today in Washington.

US President Donald Trump is expected to meet with top trade advisers to discuss the US tariffs planned to be slapped on Chinese exports on the 15th December.

The Australian Dollar edged higher despite markets bracing for potential negative impacts as the final decision as to whether or not the tariffs will go ahead rests on the shoulders of President Trump.

Some expect the US to proceed with tariffs as US officials have circulated talking points which downplay the repercussions of further tariffs ahead of today’s meeting between Treasury Secretary Steven Mnuchin, Trade Representative Robert Lighthizer, and White House advisers Larry Kudlow and Peter Navarro.

Added to this, an anonymous source stated:

‘I’m expecting them to raise the tariffs on Sunday. The administration is preparing its talking points about how that’s the right thing to do. The message is that it will not be painful.’

Pound Australian Dollar Outlook: Will AUD Surrender Gains on Heightened Trade Tensions?

Looking ahead, the Pound (GBP) could claw back losses against the Australian Dollar (AUD) if the results of the election show the Tories have secured a majority.

If Boris Johnson’s party secures enough seats to pass his Brexit deal, Sterling could be buoyed by a fresh bout of Brexit optimism.

Meanwhile, fresh tensions between the US and China could cause the ‘Aussie’ to surrender today’s gains.

If President Trump decides to push ahead with the implementation of further tariffs, risk appetite will slump and the Pound Australian Dollar (GBP/AUD) exchange rate will rise.

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