Pound to Australian Dollar Exchange Rate Fails to Recover as Risk-Sentiment Rises
Despite the major gains seen in the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate last week, the pair may be on track to shed most of those losses this week as Brexit concerns hit Sterling (GBP) and the Australian Dollar (AUD) climbs on risk-sentiment.
After opening this week at the level of 1.7679, GBP/AUD plunged around two cents on Monday and trended just above last week’s opening levels of 1.7447.
On Tuesday, GBP/AUD recovered slightly – but its gains were only modest and at the time of writing GBP/AUD still trended near the level of 1.7465.
The Pound to Australian Dollar exchange rate was unable to recover as much on Tuesday as other major Pound pairings were.
Sterling was bought from its worst levels but remained unappealing. Meanwhile, investors continued to find the risky Australian Dollar appealing, amid news that US-China trade discussions were ongoing.
Pound (GBP) Exchange Rate Outlook Remains Bearish Despite Tuesday Bounce
On Tuesday, some investors opted to buy the Pound back from its cheaper levels following Monday’s broad plunge.
However, versus the Australian Dollar the Pound’s gains were limited.
Sterling lacked the support to mount a solid recovery, while the Australian Dollar was supported by the latest developments in US-China trade negotiations.
Investors remain highly concerned about the lack of clarity in how the Brexit process will unfold.
While the UK government has indicated it will still hold the UK Parliament Brexit vote before the 21st of January, there are still fears about the UK government’s stability amid rising criticism from MPs.
The Pound’s strength was also little-changed by the day’s UK job market report, despite much of the data beating expectations.
Plus, some aspects of the job data were concerning for investors. According to Suren Thiru from the British Chambers of Commerce (BCC), the jump in wages indicated that employers were struggling to find workers amid the Brexit process:
‘More must be done to support firms looking to recruit. Businesses are still waiting for the government’s long-delayed Immigration White Paper to shed light on how they will be able to plug local shortages in the future and find the skills they need to grow.’
Australian Dollar (AUD) Exchange Rates Benefit from US-China Trade Speculation
Last week saw the Australian Dollar plunge, as US-China trade truce hopes were dampened by US President Donald Trump maintaining his fiery rhetoric towards China, as well as the surprise arrest of Huawei’s Chief Financial Officer in Canada.
The perceived worsening of US-China relations dragged the ‘Aussie’ lower towards the end of the week, and this was not helped by Australia’s disappointing Q3 Gross Domestic Product (GDP) growth data.
However, this week so far risk-sentiment has improved again slightly on fresh hopes that the US and China will still take negotiations seriously.
Investors bought the risky trade-correlated Australian Dollar following reports that high-ranking US and China officials were still talking despite last week’s tensions.
As China is Australia’s biggest trade partner, this was good news for Australian Dollar investors.
On top of US-China trade hopes, the risky Australian Dollar has benefitted from broad weakness in the safe haven US Dollar (USD). The US Dollar has been weaker as Federal Reserve interest rate hike bets weaken, making investors more willing to take risks.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Recovery Unlikely Without Brexit Clarifications
The Pound may be in for further losses in the coming days if the UK government does not offer key clarity on how the Brexit process will proceed, especially if UK Parliament criticism for the UK government worsens.
Signs that the UK government could face a no-confidence vote or leadership challenge would leave Sterling even weaker, as perceived UK political turmoil would worsen.
The Australian Dollar, on the other hand, may be in for a more solid recovery if US-China trade negotiations show optimistic signs of progress or cooperation.
Upcoming Australian data may also influence the Australian Dollar’s appeal in the coming sessions.
Westpac’s Australian consumer confidence survey for December will be published during Wednesday’s Asian session, and the Reserve Bank of Australia (RBA) will publish its latest bulletin on Thursday.
Ultimately though, political developments regarding Brexit or US-China trade relations are most likely to influence the Pound to Australian Dollar (GBP/AUD) exchange rate outlook in the coming days.