A combination of both domestic and global factors have helped the Australian Dollar to see slightly stronger demand this week so far, and the risky commodity-correlated currency has easily registered gains against the Pound, with the British Pound to Australian Dollar (GBP/AUD) exchange rate hitting its worst levels in over a month.
Could GBP/AUD be on track to lose over a cent for the second consecutive week? Last week saw GBP/AUD slip from 1.7708 to 1.7567, and this week so far the pair has tumbled further. At the time of writing on Tuesday, GBP/AUD was trending near a low of 1.7434, the pair’s worst level since June.
GBP Remains Unappealing as ‘No Deal’ Brexit Concerns Remain in Focus
While the Pound’s selloff has cooled since Monday, the British currency continued to tumble against risky trade-correlated currencies like the Australian Dollar on Tuesday as risk-sentiment improved and those currencies easily benefitted from Sterling weakness.
Amid a lack of fresh supportive UK news or data, Pound movement is still dominated by Brexit uncertainties as the possibility of a ‘no deal’ Brexit haunts investors this week.
Last Friday, Bank of England (BoE) Governor Mark Carney said the chances of a ‘no deal’ Brexit becoming reality were ‘uncomfortably high’, though he argued it was still unlikely overall.
Over the weekend though, fresh comments from UK Trade Secretary Liam Fox worsened market concerns of a worst-case scenario Brexit further. Fox stated that the odds of the Brexit process ending without a deal were currently around 60-40.
On top of that, analysts are increasingly doubtful that even the most influential UK data has the potential to really improve the UK economic outlook amid the persistent and broad fears about the Brexit’s impact on the economy.
According to analysts from Commerzbank, even upcoming UK growth data may fail to give the Pound a notable boost:
‘GBP-bulls who are waiting for the data on Friday are having to endure quite a lot of pain,
How positive can the data – that only ever describes the past – actually become to be able to cover up the [larger] risks the UK economy is facing?’
AUD Benefits from Central Bank Speculation and Risk-Sentiment
Investors have found risky commodity-correlated currencies like the Australian Dollar more appealing since the end of last week, due to rising commodity prices and stronger market performance in China.
As China is Australia’s biggest trade partner, news that Chinese markets were performing more strongly on Tuesday, as well as the day’s weakness in the US Dollar (USD), left the Australian Dollar more appealing.
Market jitters about US trade protectionism and the US-China trade spat have also lightened somewhat amid a lack of major new developments in recent sessions.
On top of this, Australia’s domestic news has supported the ‘Aussie’ slightly too.
During Tuesday’s Asian session, the Reserve Bank of Australia (RBA) held its August policy decision and its tone on Australia’s economic and monetary policy outlooks was generally unsurprising.
However, this also indicated to investors that Australia’s economy was unlikely to be significantly impacted by US trade protectionism.
Essentially, the RBA’s unsurprisingly cautious and optimistic tone was perceived as hawkish considering the broad trade uncertainties, which bolstered Australian Dollar demand on Tuesday.
GBP/AUD Forecast: Political Developments and UK Data in Focus
While some Australian ecostats in the coming days could prove influential, developments regarding the Brexit process and US trade protectionism are more likely to influence the Pound to Australian Dollar exchange rate.
If the Brexit process is perceived as having made any optimistic progress this could help the Pound recover some of its recent losses. Otherwise though, ‘no deal’ Brexit fears will continue to keep pressure on Sterling.
Meanwhile, the Australian Dollar could sustain its recent gains if the US-China trade spat remains quiet. Of course, AUD could also weaken again if there are any notable or concerning trade developments.
Australian Dollar investors may react to Australia’s latest home loans stats or a speech from Reserve Bank of Australia (RBA) Governor Philip Lowe on Wednesday.
But in terms of data, Friday’s session will be the most influential for the Pound to Australian Dollar exchange rate as Britain’s latest Gross Domestic Product (GDP) growth results will be published.
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TAGS: Pound Australian Dollar Forecasts