- UK Votes for Brexit – Shock victory causes havoc in financial markets
- Pound (GBP) Exchange Rates Dive – Uncertainty predicted to weigh heavily
- Australian Dollar (AUD) Struggles on Risk-Off Trade – ‘Aussie’ (AUD) predicted to weaken further
- GBP AUD Exchange Rate Forecast to Hold Losses – PM Resignation adds to market uncertainty
On an historic day for Britain and the globe, the UK’s choice to break ties with the European Union sent shockwaves across financial markets. The GBP AUD exchange rate softened, although the risk-correlated Australian Dollar is holding losses versus many of its peers.
Sterling plummeted across the board, reaching lows against the US Dollar not seen since 1985. The Pound has rebounded from intraday lows, however, amid concerns that the initial reaction was somewhat overdone.
GBP AUD Exchange Rate Forecast to Hold Losses as Investors Flee from Sterling
After voting had concluded yesterday Pound Sterling exchange rates advanced considerably, reflecting trader confidence that the UK would vote to remain in the European Union. This confidence transpired to be significantly misplaced, exaggerating the resultant Sterling downtrend.
Since the initial shock GBP conversion rates have rebounded from intraday lows, but continue to hold a weak position.
In addition to the uncertainty as to what the impact of a Brexit will be on the UK, Europe and the rest of the world, the resignation of Prime Minister David Cameron has only added to trader jitters.
Many analysts predict that there will be a general election before the close of the year, especially as the referendum has highlighted the growing disconnect between the people and their politicians.
Writing for The Telegraph, Juliet Samuel wrote;
‘The only way to decide how we move forwards is with the tried and tested method of the institution at the heart of the Brexit campaign: our parliamentary democracy. We must have a General Election; we must see our leaders come forwards with their best effort at a thoughtful plan for the future; we must see new leaders emerge.’
GBP AUD Exchange Rate: AUD Forecast to Struggle on Risk-Off Trade
Market sentiment dampened considerably in the aftermath of the UK’s Brexit vote. Whilst the ‘Aussie’ is holding gains versus the severely weakened Pound, damp market sentiment has seen the Oceanic asset decline versus most of its peers.
With market sentiment showing little sign of a swift reversal given the mounting uncertainty and volatility, AUD exchange rates are likely to extend losses.
This will actually be welcomed by the Reserve Bank of Australia (RBA) which has highlighted AUD overvaluation as a significant concern.
Markets also predict that the RBA will cut the overnight cash rate in the near-term.
‘Our existing view on the RBA is that persistently low inflation narrowly favoured a rate cut in August. We think that Brexit could place additional pressure on the RBA to cut rates if continued market volatility materially dents confidence,’ wrote ANZ’s economics team.
‘We also think the AUD/USD will be important in shaping the RBA’s view on interest rates, where the decline to date in the exchange rate has only returned it to levels prevailing in early June.’
GBP AUD Exchange Rate Forecast to Hold Losses despite Damp Market Sentiment
Forecasting Sterling outlook is seemingly comparatively simple given the high likelihood that traders will continue to pull away amid mounting uncertainty.
However, there is potential for the GBP AUD to recover some of its losses in the near-term as damp market sentiment dominates market movement.
It is also worth noting that if Sterling exchange rates plummet further, traders are likely to be tempted to take advantage of the staggeringly low trade weighting. This would see Sterling rebound sharply against risk-correlated assets.
During Friday’s European session, the GBP AUD exchange rate was trending within the range of 1.8005 to 1.9404.