A lack of demand for the Australian Dollar in recent sessions has meant that it has been unable to push the British Pound to Australian Dollar (GBP/AUD) back further from gains seen at the beginning of the week. While the Pound outlook is volatile amid UK election polling uncertainties, the Australian Dollar saw fresh weakness today in reaction to predictions from the Westpac bank about what the Reserve Bank of Australia (RBA) will do next year.
Much like last week, GBP/AUD has been trending with an upside bias this week but is struggling to hold its ground on fresh gains.
Since opening the week at the level of 1.8909, GBP/AUD has been generally trending almost a cent higher. On Monday, GBP/AUD touched on a high of 1.9056 before sliding again, but at the time of writing today GBP/AUD is trending near the level of 1.9000 as it advances again.
GBP Exchange Rates up despite Trio of Polls Showing UK Election Race is Narrowing
Market demand for the Pound has been weaker since yesterday, when investors begun to notice a trend that the latest UK General Election polls were showing a narrowing race with just over a fortnight until the election.
Sterling plunged yesterday when a second poll in as many days showed the opposition Labour Party gaining on the ruling Conservative Party, which still has a solid lead.
The British currency continued to fall overnight, as a third poll was published showing the Labour Party’s polls improving. This poll was published by YouGov, and showed the Conservative lead had narrowed to 11 points.
With polls showing greater uncertainty, the Pound has been unable to hold its best levels. Investors are anxious that if the race tightens it could lead to a hung Parliament, which would mean further months of Brexit deadlock and potentially even a no-deal Brexit.
With just over two weeks until the election takes place, analysts expect the Pound’s correlation to election polls will only strengthen. According to Thu Lan Nguyen, FX Strategist at Commerzbank:
‘The focus will be increasingly on the polls now,
Any surprise or any big move in any kind of direction, I think, will certainly become bigger the closer the elections are.’
AUD Exchange Rates Tumble as Westpac Bank Predicts Further Dovishness from RBA
The Pound to Australian Dollar exchange rate more easily held its ground today and avoided further losses due to broad weakness in the Australian Dollar.
Investors have been selling the ‘Aussie’ today despite rising hopes that the US and China are closing in on a ‘phase one’ trade deal of sorts. This is because the ‘Aussie’ is unappealing due to Australia’s domestic outlook.
Despite hopes that the Reserve Bank of Australia (RBA) could avoid becoming more dovish, the latest outlook from analysts at Westpac Bank have caused RBA interest rate cuts to rise.
The bank predicts that the RBA will cut Australia’s interest rates twice in 2020, leaving rates at 0.25%. Bill Evans, Westpac’s Chief Economist, said:
‘We expected that the final cut in February would have been insufficient to provide the RBA with enough comfort that the economy was moving into line with their growth; inflation; and unemployment targets.
“The minutes of the November RBA Board meeting provided some support to our view when it was noted the Board “also discussed the possibility that a further reduction in interest rates could have a different effect on confidence than in the past, when interest rates were at higher levels”.’
Some analysts are also predicting that the RBA could introduce quantitative easing (QE) next year.
GBP/AUD Exchange Rate Forecast: UK Polls and Australian Home Sales in Focus
With the Pound expected to become more and more focused on UK election polling as the 12th of December General Election approaches, polls will remain the focus for Pound investors.
This means that upcoming UK data could be brushed over. Further polls showing a strong performance for the opposition Labour Party could worsen UK political uncertainty and weaken Sterling, while strong polls for the Conservatives would have the opposite effect.
While Sterling trade focuses on polls, the Australian Dollar could find some support if upcoming Australian data boosts Australia’s domestic outlook.
The Reserve Bank of Australia (RBA) carefully watches Australian housing prices, so Friday’s Australian new home sales stats could be influential.
Of course, any surprising developments in US-China trade relations could also influence the Pound to Australian Dollar exchange rate due to the Australian Dollar’s correlation to trade.
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