Earlier in the week, mixed UK election polling and a surprisingly neutral tone from the Reserve Bank of Australia (RBA) left the British Pound to Australian Dollar (GBP/AUD) exchange rate tumbling. However, since then investors have become more confident in the UK political outlook once again, and the Australian Dollar has been knocked lower by a double whammy of concerning global trade developments and underwhelming Australian growth data.
Following last week’s impressive GBP/AUD advance from 1.8908 to 1.9123, GBP/AUD looked to be on track to shed much of those gains until yesterday.
On Monday and Tuesday morning, GBP/AUD shed over half of last week’s advances, but since yesterday has rebounded.
At the time of writing on Wednesday, GBP/AUD is trending near the week’s opening levels again, putting it just below a high of 1.9145 – the best level for the pair since the 2016 Brexit Referendum.
GBP Exchange Rates Benefitting from Market Bets of a Conservative Majority
Earlier in the week, fresh UK election polling showing that the opposition Labour Party could still gain on the ruling Conservatives left the Pound less appealing, and the British currency slipped.
However, while polls continue to come in mixed, investors still see a pattern of strong performance from the Conservatives across the polls in general.
This has bolstered market speculation that a Conservative majority is the most likely outcome of next Thursday’s UK General Election.
Hopes that a Conservative majority would make a worst-case scenario no-deal Brexit less likely and a relatively soft Brexit more likely have been supporting the Pound today.
While a Conservative majority and hopes for a soft Brexit are keeping the Pound buoyed, some analysts say Sterling could be in for even further gains if the Conservatives win next week’s election. According to Dean Turner, Economist at UBS Wealth Management:
‘Sterling has strengthened on days when the prospects for the Conservative Party have seemingly improved, and vice versa. One interpretation of this phenomenon is that investors favour the prospect of clarity on Brexit.’
However, analysts are also warning that the possibility of a hung Parliament remains. Speaking on the possibility of an unexpected election result, Turner said:
‘The election is Boris Johnson’s to lose. However, turnout rates, tactical votes, and the usual campaign trail pitfalls could all swing the final result.’
AUD Exchange Rates Hit by Fresh US-China Trade Tensions and Australian Growth Miss
The Australian Dollar saw a surge in demand near the beginning of the week, boosted by stronger than expected Chinese manufacturing data and an unexpectedly neutral tone from the Reserve Bank of Australia (RBA).
The RBA was less dovish than investors had been expecting, neglecting to strongly signal when its next interest rate cut would be. This caused 2020 interest rate cut speculation to dampen slightly.
However, after strong ‘Aussie’ performance on Monday and Tuesday, some fresh US-China trade comments from US President Donald Trump spooked investors yesterday afternoon.
US President Donald Trump hinted that there was no deadline for talks, and that it may even be better for a trade deal to wait until after the 2020 US Presidential Elections.
This caused US-China trade hopes to fade, which dampened market demand for trade-correlated currencies like the Australian Dollar.
Then, today’s Australian growth rate stats only put additional pressure on the ‘Aussie’.
Australian growth only printed at 0.4% quarter-on-quarter in Q3, rather than the expected 0.5%. The data caused RBA interest rate cut speculation to rise again and pushed AUD lower.
While speculation that US-China trade talks are still going well despite Trump’s comments caused mixed market movement today, the Australian Dollar remained unappealing amid poor Australian growth data.
GBP/AUD Exchange Rate Forecast: Australian Trade and Retail Reports Ahead
Market demand for the Australian Dollar is limited, as Australian data disappoints and global trade-sentiment becomes more mixed.
However, while the Australian Dollar could be in for further losses in the coming days on market risk-aversion, the currency could find some support if upcoming Australian data impresses investors.
Thursday’s Asian session will see the publication of this week’s Australian trade balance and retail sales results, which could be highly influential if they surprise investors.
If Australian trade and export stats impress markets, the trade-correlated Australian Dollar could push GBP/AUD lower again towards the end of the week.
Australia’s retail sales results, expected to have improved to 0.3% in October, could also boost ‘Aussie’ support if they beat forecasts.
Sterling, on the other hand, will remain focused on UK election polls and speculation ahead of next week’s UK General Election.
If polls continue to show that the race is tightening, the Pound to Australian Dollar exchange rate may struggle to hold its recent highs.
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