- GBP AUD Drops to Lowest Levels Since Sept 2014– Pair fluctuates on Monday
- Sterling (GBP) Throttled by BoE Expectations– Central bank likely to cut rates soon
- ‘Aussie’ (AUD) Weakened by Uncertainty– Australian elections held over weekend
- Update:RBA Leaves Rates Frozen – But hints towards easing next month
- Forecast: Sterling Weakness Likely to Continue – ‘Aussie’ to remain pressured too
GBP AUD Exchange Rate Plunges on Tuesday
Despite dropping against most of its major rivals due to political uncertainty, the ‘Aussie’ Dollar gained against the Pound on Tuesday as the GBP AUD exchange rate dropped below 1.7500.
At the time of writing, the pair trended in the region of 1.7480 after trickling downward throughout the day.
Regardless of reports that the Australian election’s vote counts could last days or even up to a month, with no majority in sight, the Pound’s selloff was still worse as markets reacted to the Bank of England’s (BoE) latest stability report.
While BoE Governor Mark Carney announced that banks would be given eased lending measures as stimulus, markets were bearish after Carney made statements that many of the BoE’s previous warning forecasts about a Brexit were coming true.
However, the ‘Aussie’ is likely to remain pressured too with the possibility of a ‘hung parliament’ still high.
(Previously update 16:00 04/07/2016)
GBP AUD Exchange Rate Remains Low on Monday
The GBP AUD exchange rate briefly fell to 1.7607 on Monday afternoon during a brief Australian Dollar relief rally, before returning to trend in the region of 1.7645 in the late afternoon.
The Australian Dollar had been briefly boosted by news that global credit ratings agencies had played down the chances of a credit rating downgrade for Australia. Australia was one of the few nations to retain its credit rating following the 2008 financial crisis, and as such a credit rating cut would have weighed on the ‘Aussie’ considerably.
However, sentiment towards the ‘Aussie’ remained mixed throughout the day due to news that counting the remaining election votes could take around a month to finalize.
(Published 09:48 04/07/2016)
The GBP AUD exchange rate slipped lower on Friday, despite the Pound’s attempts to recover over a weak Australian Dollar. Similarly, the Pound climbed on Monday as investors remained uncertain over Australia’s latest general election results.
GBP/AUD briefly hopped to 1.7857 as Asian markets opened on Monday morning before slipping to its lowest levels since September 2014, 1.7673. At the time of writing, the pair was trending in the region of 1.7648.
Sterling (GBP) Struggles on BoE Cut Hints
The Pound experienced a heavily volatile week last week, as it plunged to new lows across the board following the announcement that Britain would Brexit from the EU.
It then attempted to recover from its cheapest levels before plummeting again on Friday as the Bank of England (BoE) Governor hinted that fiscal stimulus was on the way.
BoE Governor Mark Carney made his first major speech since the day of the Brexit result. While he briefly stated following the result that the BoE would help to prevent a financial crisis, in-depth comments made last Thursday affected the Pound more directly. The Telegraph reports;
‘The Bank of England could unleash fresh monetary stimulus this summer in an effort to support the economy after Brexit, Mark Carney has said, in remarks that have been taken as a sign that policymakers are preparing to slash interest rates and release additional waves of QE.
In a speech given at Threadneedle Street, the Governor warned that the referendum result had increased uncertainty about the outlook for the UK economy, given the “major regime shift” that leaving the EU entailed.’
With the Pound in flux, other UK investments have become popular in comparison. The FTSE 100 has been boosted by investors from outside the UK, due to it being priced in currently weak Pounds.
Financial news within the UK continued to shock markets on Monday, with data having limited impact.
According to an interview with the Financial Times, UK Chancellor George Osborne claimed that corporation tax will be cut in order to encourage businesses to continue investing in the nation despite the Brexit vote. This follows statements he made on Friday last week that he would no longer pursue a 2020 budget surplus.
Australian Dollar (AUD) Weakened after Saturday’s Election
The Australian government has seemingly joined the political uncertainty party after Saturday’s general election unexpectedly resulted in neither major party having a clear majority.
Investors turned bearish following speculation that the election could lead to a hung parliament. The Wall Street Journal reports;
‘Neither Prime Minister Malcolm Turnbull’s Liberal-National coalition nor the opposition Labour Party have won enough seats to form a government after Saturday’s federal election, meaning the result could deliver a razor-thin majority or even a hung parliament. A small number of seats remain undeclared with narrow margins, which may delay the final result for up to two weeks as counting continues.
Australian stocks made small gains amid a broader rally for stocks in the region but lagged behind other indexes in Asia-Pacific when trading resumed on Monday.’
Analysts are currently speculating that yet another general election may be possible in the coming months, with the uncertainty causing the Australian Dollar to drop against many of its sturdier rivals.
It is also highly likely that the ‘Aussie’ Dollar’s appeal has slipped ahead of Tuesday’s key Reserve Bank of Australia (RBA) meeting, as the bank is heavily speculated to be considering another interest rate cut.
GBP AUD Exchange Rate Forecast: Australian Uncertainty in Focus
While the Brexit has been the centre of global market attention since the week of the EU Referendum vote, markets are likely to diverge much of their attention towards Australia in coming days.
According to The Guardian, efforts to count votes will continue on Tuesday. Votes collected via post still have the potential to shift the vote one way or another, as neither party currently have a majority.
If the vote really does result in a hung parliament, Australian Prime Minister Malcolm Turnbull’s assumption that parliament could resume in August is likely to be delayed.
While this is likely to weigh considerably on Australian Dollar sentiment, Tuesday’s Reserve Bank of Australia (RBA) announcement has the potential to send the ‘Aussie’ plummeting if the bank announces a Brexit-influenced interest rate cut, as many have speculated will be the case.
If the central bank indicates that it is maintaining a wait and see approach to Brexit effects, it would cause ‘Aussie’ appetite to surge as confidence in the Australian economy recovers.
Markets are likely to focus on Britain’s ongoing political situation, as always, with the Conservative leadership contest continuing and MPs beginning to vote on Tuesday.
At the time of writing, the GBP AUD exchange rate trended in the region of 1.7648, while the AUD to GBP exchange rate traded at levels around 0.5660.
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