Deepening Hard Brexit Fears Push Pound Australian Dollar (GBP/AUD) Exchange Rate Down
Escalating fears over Brexit prompted the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate to take a fresh leg lower, hitting its weakest level since July.
Ahead of the penultimate round of UK-EU talks commencing markets were spooked by reports that the UK could renege on its previous commitments on the Irish border issue.
With relations between the two sides souring once again the risk of talks ending without any deal appeared to increase, leaving Pound Sterling (GBP) biased to the downside.
As the UK economy remains under pressure from the impact of the Covid-19 crisis the prospect of a hard Brexit scenario only added to market anxiety.
A better-than-expected NAB business confidence index reading encouraged demand for the Australian Dollar (AUD), meanwhile.
Australian Dollar Stumble Forecast on Softer Consumer Confidence
The mood towards the Australian Dollar could sour on Wednesday, though, if the Westpac consumer confidence index weakens as anticipated.
Evidence that sentiment among Australian consumers remained muted in September may encourage bets that the economy will remain under pressure for longer.
As a lower level of consumer confidence and spending could drag on economic momentum in the third quarter the risk of another negative quarter of growth may pick up.
AUD exchange rates also remain vulnerable to any particular shift in the wider sense of market sentiment for the foreseeable future.
Persistent risk-aversion may give investors incentive to sell out of the risk-sensitive antipodean currency, putting a potential floor under the GBP/AUD exchange rate.
Unless market confidence picks up in the days ahead a degree of jitters are likely to limit the Australian Dollar’s ability to push higher.
Underwhelming UK Growth Set to Limit GBP/AUD Exchange Rate Potential
The Pound could experience further weakness ahead of the weekend if the latest UK gross domestic product data fails to impress.
Forecasts point towards another sharp contraction from the NIESR monthly GDP tracker in August, highlighting the continued weakness of the economy.
With Brexit-based disruption having the potential to weigh on economic momentum in the months ahead any fresh weakness here could easily disappoint investors.
Even if the economy shows signs of moving in the right direction at the start of the third quarter this may not be enough to lift demand for the Pound.
Focus will also fall on July’s UK trade data, with the headline surplus looking set to narrow in response to weaker trade conditions.
Even if the balance remains in a state of surplus, showing a more limited impact from Covid-19 disruption, anything shore of a significant upside surprise is unlikely to alter the current bias of the GBP/AUD exchange rate.