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Pound Australian Dollar Exchange Rate News: GBP/AUD Drops on Australian Election

May 23, 2022 - Written by John Cameron

GBP/AUD Slips on Australian Election 2022

The Pound Australian Dollar (GBP/AUD) exchange rate is facing headwinds at the opening of today’s European session as the Australian election looks set to produce a new majority government. Meanwhile, the Pound (GBP) continues to struggle amid the UK cost-of-living crisis.

At the time of writing, the GBP/AUD exchange rate is trading at approximately €1.77.

Australian Dollar (AUD) Climbs amid Australian Election 2022

The Australian Dollar (AUD) is gaining ground this morning as the Australian election 2022 looks likely to result in a majority government.

AUD investors had been concerned that the election would result in a hung parliament, with the political uncertainty causing some turbulence for the ‘Aussie’.

At present, the Labor party requires only three more seats to obtain the 76 seats needed to win, with Labor leader Anthony Albanese having been sworn in as Prime Minister.

With it looking likely that the Labor party will be able to form a majority government, AUD investors appear upbeat.

Moreover, the Reserve Bank of Australia’s (RBA) recent hawkish position continues to underpin AUD exchange rates.

At the beginning of May, the RBA hiked interest rates by 25 basis points to 0.35%. Last week, the meeting minutes from the bank’s last decision revealed that they had considered even steeper rate rises.

Together, the election and the RBA’s recent hawkish position are driving a risk-on market mood, further supporting the risk-sensitive Australian Dollar.

On the other hand, the China-proxy Australian Dollar’s gains are being limited as a new outbreak of covid across Beijing reignites lockdown fears.

Across China, 802 new infections were reported on Saturday. This has spooked markets as China’s zero-Covid approach may cause the second-largest economy – and Australia’s largest trading partner – to return to lockdown.

Pound (GBP) Slips against Strong Australian Dollar

The Pound is trading lower against the strengthening Australian Dollar as the UK cost-of-living crisis and Brexit woes continue to weigh on Sterling.

The cost-of-living crisis continues to place pressure on household incomes, with wages failing to keep up with soaring inflation. Inflation reached 9% last month, with the Bank of England (BoE) predicting it will hit 10% before the end of the year.

According to Michael Lewis, the chief executive of E.ON, Britain’s biggest energy supplier, 40% of the UK public will be in fuel poverty by October if the government doesn’t provide additional support.

The Liberal Democrats’ economy spokesperson, Christine Jardine, said:

‘Hardworking families across the UK are really struggling right now as the price of everything from food to fuel continues to rise. Yet the Conservatives are doing little to help.’

However, the UK Chancellor of the Exchequer, Rishi Sunak, is reportedly awaiting projections and details of how sharply energy bills are likely to climb in the autumn before offering additional financial aid.

Moreover, GBP exchange rates continue to be burdened by Brexit concerns.
Reportedly, UK Foreign Secretary Liz Truss stated she is ‘defending the Good Friday agreement’ by looking to amend the Northern Ireland protocol.

The UK government has previously threatened to unilaterally amend the protocol. Should these amendments be made, it may trigger an UK-EU trade war and negatively impact Sterling’s appeal.

GBP/AUD Exchange Rate Forecast: Will the Australian Election Aid AUD Exchange Rates?

Looking ahead, the Pound Australian Dollar exchange rate may continue to be influenced by the Australian election.

AUD exchange rates may be bolstered amid the political developments.

Into tomorrow, the latest flash PMIs for both the UK and Australia could cause some movement. Both countries are expected to show a slowdown in business activity, but any surprise results could trigger significant swings in GBP/AUD.

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