Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Softens as Australian PM Survives Challenge
As Australian Prime Minister Malcolm Turnbull survived a leadership challenge overnight this left the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate on a weaker footing.
Although markets still see Turnbull’s position as fragile, with various ministers resigning in the wake of the leadership challenge, the temporary reprieve was still enough to shore up the Australian Dollar (AUD).
However, if political turmoil continues to mount over the coming days this could drag AUD exchange rates down once again.
The more dovish nature of the latest Reserve Bank of Australia (RBA) meeting minutes limited the upside potential of the Australian Dollar, meanwhile.
As Bill Evans, Chief Economist at Westpac, commented:
‘We anticipate the cash rate remaining on hold through 2018, 2019 and 2020. Factors which we consider important in this profile are: a steady weakening in the housing market through 2018 and 2019, low inflation, benign wages growth, and clear signs of a slowdown in the world economy.
‘The Minutes mention most of these factors but appear to be overly hopeful that economic activity and income growth will be sufficient to justify a rate hike at some point.’
Higher UK Fiscal Surplus Supports GBP/AUD Exchange Rate
The weakness of the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was also muted by the positive nature of July’s UK public sector net borrowing data.
As the fiscal surplus widened to 2.8 billion this encouraged greater confidence in the underlying health of the UK economy, representing the largest July surplus since 2000.
This improvement suggests that the economic outlook is more positive than previously thought, even as other indicators remain disappointing.
Even so, as Brexit talks recommence in earnest the appeal of Pound Sterling (GBP) remains generally limited.
Until there are signs of progress towards a deal GBP exchange rates look vulnerable to the downside.
Hawkish Fed Minutes Forecast to Boost Pound Australian Dollar (GBP/AUD) Exchange Rate
Further softening could be in store for the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate if Australian data performs well in the days ahead.
An uptick in the Westpac leading index may encourage greater optimism, providing the measure points towards stronger economic growth at the start of the second quarter.
However, AUD exchange rates are likely to come under pressure as anticipation mounts for the release of the Federal Open Market Committee’s (FOMC) August meeting minutes.
If the Fed maintains a more hawkish outlook on monetary policy this is likely to weigh heavily on demand for the commodity-correlated Australian Dollar.
The GBP/AUD exchange rate could also benefit if global trade jitters show fresh signs of mounting, with US and Chinese officials resuming trade talks this week.
Any indication of another breakdown in relations could offer a solid boost to the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate in the near term.