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GBP to AUD Exchange Rate Pushed Lower as Markets Return to Risk

October 8, 2020 - Written by Minesh Chaudhari

After days of mixed performance on Brexit uncertainties, the British Pound to Australian Dollar (GBP/AUD) exchange rate is trending lower again today. Investors are hesitant to buy the Pound as Brexit uncertainties persist, and the Australian Dollar is advancing as markets return to currencies and assets correlated with risk and trade. The Australian Dollar is seeing stronger demand towards the end of the week as markets settle from various US political uncertainties.

Since opening this week at the level of 1.8063, GBP/AUD has been seeing fairly volatile trade and within a fairly narrow region. GBP/AUD has been fluctuating between lows of 1.8006 and highs of 1.8164.

At the time of writing on Thursday, GBP/AUD is once again trending lower as investors return to currencies correlated with risk and trade. GBP/AUD is currently trending near the level of 1.8041 – not far above the week’s lows.

Still, movement has been much calmer than last week’s, where GBP/AUD volatility ultimately didn’t have much impact on the pair’s levels by the end of the week. GBP/AUD could end this week near its opening levels unless there is a surprising shift in tone.

GBP Exchange Rates Remain Volatile amid Brexit Uncertainty

Investors are hesitant to make big movements on the Pound this week, amid a lack of solid developments in the Brexit process.

At the beginning of the week, investors were optimistic that the UK and EU had agreed to extend Brexit negotiations by another month.

While speculation persists that talks could collapse, investors are generally more optimistic that talks have an opportunity to lead to a deal over the coming month. According to Marshal Gittler, Head of Research at BDSwiss:

‘In any case, next week’s EU Council meeting is not the hard deadline we had thought it would be but rather yet another ‘stock-taking exercise’,’

Still, some analysts believe markets are still under-estimating the risk of a no-deal Brexit outcome. The Pound has been gaining on Brexit hopes lately, but a no-deal outcome is still seen as highly possible.

According to Analysts at Bank of America (BofA):

‘investors are under-pricing no-deal risks.

Though a deal remains our base case we argue that this is no longer the binary outcome for the Pound that it was once

UK red lines prevent a deep and comprehensive relationship with the EU’

AUD Exchange Rates Advance as Investors Return to Risk-Correlated Assets

The Australian Dollar is a currency often associated with risk and trade sentiment. As a result, it often benefits from optimistic moods in markets.

With US politics being filled with uncertainties in the past week, the Australian Dollar has spent most of the week volatile.

The ‘Aussie’ was hit lower by safe haven demand as US President Donald Trump said that US Congress should lead fiscal stimulus measures until after the election.

Then, when Trump said he still wanted smaller stimulus to be passed, risk-sentiment improved again slightly and the Australian Dollar was more appealing.

On Thursday, the Australian Dollar was advancing as it benefitted from the market’s fiscal policy hopes and slightly higher risk-sentiment.

According to Marshall Gittler, Head of Investment Research at BDSwiss:

‘Overall, investors seem to be focusing more on the increasing odds of a Biden win and what that might imply for a stimulus package after the election,

With that eventuality in mind, Trump’s decision to stop negotiations now is ultimately a risk-on move, as it increases the likelihood of a decisive Biden win.’

GBP/AUD Exchange Rate Forecast: UK Growth Rate Report Ahead

Tomorrow will see the publication of typically influential UK ecostats.

Britain’s August trade balance, industrial and manufacturing production, and growth rate results will be published during tomorrow’s European session. They will be the most notable UK datasets of the week.

In particular, Britain’s August growth rate stats will give Pound investors the clearest idea yet of how Britain’s economy has been weathering the coronavirus pandemic in recent months.

If UK growth beats forecasts, the Pound could find more support. This could help GBP/AUD to avoid losses.

On the other hand, poor UK data or concerning Brexit speculation could keep the Pound under pressure.

The Australian Dollar, meanwhile, will remain sensitive to shifts in market risk sentiment.

If US politics remain uncertain and volatile, limited risk-sentiment could make it easier for the Pound to Australian Dollar exchange rate to recover and hold its ground.
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