GBP AUD Exchange Rate Slumps but Pause in Risk Rally Limits Losses
Worsening no-deal Brexit fears hit the Pound Sterling to Australian Dollar (GBP AUD) exchange rate this morning. However, as the Australian Dollar’s (AUD) recent rally is running out of steam, the pair may not fall much further.
GBP/AUD spent last week trending with an upside bias after opening the week at the level of 1.8028. The pair was unable to hold its weekly best, but still closed over half a cent higher at the le el of 1.8102.
This morning though, GBP/AUD was knocked and quickly shed all those gains. Just earlier, GBP/AUD touched on a low of 1.7916. This was the worst level for the pair since late-September.
At the time of writing, GBP/AUD trends closer to the level of 1.7961. Intensifying no-deal Brexit fears are weighing heavily on the Pound (GBP) outlook, while the ‘Aussie’ outlook remains fairly positive.
Pound (GBP) Exchange Rates Hit by Worsening No-Deal Brexit Fears
In recent weeks, the Pound outlook has been supported by expectations that the UK and EU were on the cusp of reaching a deal on Brexit.
However, December draws on and there has still been no deal. In fact, a lack of progress in recent sessions is making markets anxious that a no-deal Brexit is still a very real possibility.
The Pound has become increasingly volatile and was hit lower today as much of the optimism around talks has evaporated for now. According to John Goldie, FX Dealer at Argentex:
‘Markets are increasingly jittery to bad news having been willing to look through much of the negative headlines last week,’
Australian Dollar (AUD) Exchange Rates Cool after Strong Rally
The risk and trade-correlated Australian Dollar has seen bullish movement in recent weeks. The currency has been gaining across the board as markets become more optimistic about coronavirus vaccine news and US fiscal stimulus.
These factors continue to keep the Australian Dollar outlook appealing as well.
The ‘Aussie’ is struggling to push much further for now as markets cool on the recent rally. This is making it easier for GBP/AUD to rebound slightly from its worst levels today.
However, analysts believe the AUD outlook remains strong overall. According to Richard Yetsenga, Chief Economist at Australia and New Zealand Group:
‘As long as US monetary policy remains focused on actual inflation and employment outcomes rather than forecasts, US Dollar weakness is likely to persist. This is just one factor that will contribute to Asian currencies appreciating further,’
GBP AUD Exchange Rate Outlook Could Worsen Further Without Brexit Deal
The Pound to Australian Dollar exchange rate is avoiding further losses for now. However, the pair’s outlook could fall even lower if no Brexit deal is reached soon.
No-deal Brexit fears are gradually worsening again, and if the Brexit transition period ends without a deal then the Pound outlook will likely take a big hit.
However, analysts continue to speculate that a deal is more likely than no-deal. John Goldie at Argentex said:
‘No party involved wants to be seen to be the first to concede and, actually, all the recent theatrics are indicative of the fact that the end is in sight and while both sides remain at the table I suspect a deal of sorts remains the clear favourite outcome’
The Pound outlook could improve sharply again if it seems a Brexit deal will be reached after all.
As for the Australian Dollar, coronavirus vaccine hopes continue to make markets more optimistic. This means the AUD will remain appealing.
Tomorrow’s Australian business confidence and building permits data would need to be highly disappointing for it to influence the ‘Aussie’ outlook.
Overall, the Pound to Australian Dollar (GBP AUD) exchange rate will remain volatile due to the current broad uncertainty in the Brexit outlook.