Brexit Deadline Extension Limits Pound Australian Dollar (GBP/AUD) Exchange Rate Downside
As EU leaders agreed to a three-month extension of the Brexit deadline the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate found some support.
While markets still awaited the outcome of parliament’s vote on a proposed general election this announcement served to further diminish the risk of a no-deal Brexit.
With the UK no longer appearing at risk of crashing out of the EU on Thursday the mood towards Pound Sterling (GBP) naturally improved, even in the face of underwhelming domestic data.
Although the latest CBI reported retail sales index picked up from -16 to -10 on the month the underlying details of the report still painted a discouraging picture.
As businesses now face another three months of uncertainty ahead of the new Brexit deadline a further slowdown in retail sales looks likely as economic activity continues to stall.
Prospect of US-China Trade Breakthrough Boosts Australian Dollar (AUD)
Increasing hopes of an imminent breakthrough in the first phase of US-China trade talks offered a boost to the Australian Dollar (AUD), meanwhile.
With the two sides appearing on course to sign a preliminary trade agreement in the near future markets saw an increased sense of risk appetite.
However, AUD exchange rates could face fresh downside pressure on Wednesday if the third quarter consumer price index fails to pick up as forecast.
As the Reserve Bank of Australia (RBA) has maintained a relatively dovish outlook on the economy a lower level of inflationary pressure would further reduce the odds of any monetary tightening.
If the headline inflation rate falls further away from the RBA’s current 2% target this would give policymakers greater incentive to consider cutting interest rates again in the coming months.
Any deterioration in market confidence could also put a dampener on the Australian Dollar, particularly if the odds of US-China trade progress appear to fade.
UK Election Jitters Forecast to Drag on GBP/AUD Exchange Rate
If MPs vote against the prospect of a December general election this could trigger fresh volatility for the GBP/AUD exchange rate.
With a parliamentary consensus on Brexit still looking unlikely at this stage the chances of further political paralysis may weigh heavily on demand for the Pound.
On the other hand, another election also carries risks for GBP exchange rates if the Conservatives seem set to pursue a harder angle on Brexit.
Until investors see a greater sense of clarity over the political outlook this is likely to limit the potential for GBP/AUD exchange rate gains for the foreseeable future.
A weaker reading from September’s UK consumer credit data may also dent the Pound as the dampening effect of Brexit-based anxiety continues to emerge.
Without evidence of greater resilience among UK consumers GBP exchange rates are expected to remain biased to the downside thanks to political pressures.