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Pound Sterling to Australian Dollar Exchange Rate Outlook Remains Dominated by Brexit Despite UK Prime Minister Survival

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Pound to Australian Dollar Exchange Rate Sustains Gains as UK Prime Minister Survives No-Confidence Vote

While it still remains well below this week’s opening levels, the Pound to Australian Dollar (GBP/AUD) exchange rate rebounded solidly on Wednesday and sustained most of its recovery thanks to some optimistic developments in UK politics.

After opening this week at the level of 1.7678, GBP/AUD plummeted until Wednesday when the pair touched on a weekly low of 1.7299.

On Wednesday though, hopes for stability in the UK Conservative Party helped GBP/AUD to rebound. GBP/AUD recovered around two cents and trended near the level of 1.7505 at the time of writing.

Ultimately, investors bought the Pound (GBP) versus the risky trade-correlated Australian Dollar (AUD), as UK political fears lightened slightly.

However, due to stronger demand for riskier currencies as well as other persisting UK and Brexit political jitters, the Pound to Australian Dollar exchange rate was only able to recover around half of its weekly losses.

Pound (GBP) Exchange Rate Recovery Limited as Brexit Jitters Persist

On Wednesday, the Pound saw a strong recovery from its worst levels.

The British currency’s recovery was bolstered by speculation that UK Prime Minister Theresa May was likely to smoothly win a no-confidence vote against her, which had been triggered by UK Conservative Party backbenchers on Wednesday morning.

Prime Minister May did indeed win the vote. This meant the UK Conservative Party would not be able to seek a new no-confidence vote against her for at least 12 months.

This lightened market concerns that the UK Conservative Party could be taken over by the wing of the party that supports a hard or ‘no-deal Brexit’.

However, despite PM May’s success there were concerns about the number of rebels – with 117 members of her party, over a third, voting against her.

On top of concerns about PM May’s lack of popularity, the Pound was dampened by persistent concerns about the popularity of her negotiated UK-EU Brexit deal, which analysts still predict is not likely to pass smoothly through UK Parliament.

Australian Dollar (AUD) Exchange Rates Avoid Losses as US-China Trade Jitters Lighten

The Pound was unable to recover much further against the Australian Dollar overnight, as markets continued to find the relatively risky trade-correlated ‘Aussie’ more appealing due to the latest global trade developments.

Investors have been more willing to take risks in recent sessions, as trade tensions between the US and China are perceived to be lightening despite the fresh tensions seen last week.

Chinese officials have indicated they will slash tariffs on imports of US cars, and ramp up imports of US soybeans.

On top of this, reports claimed that China would look at reviewing its economic plans in order to make it easier for foreign companies to do business with China.

According to Ray Attrill, Head of FX Strategy at the National Australia Bank (NAB):

‘Overnight, the WSJ has reported that China was drafting a replacement for the Made in China 2025 policy. The report said China is considering delaying some of its targets to 2035 and put more focus on improving industry standards, with the new policy planned to be rolled out early next year.’

Pound to Australian Dollar (GBP/AUD) Exchange Rate Outlook Focuses on Political Developments

The Pound to Australian Dollar (GBP/AUD) exchange rate recovered from its worst levels on Wednesday, but the pair remains well below the week’s opening levels as Sterling is ultimately unappealing on persistent Brexit uncertainties.

While UK Prime Minister Theresa May survived the UK Conservative Party no-confidence vote, there is still a chance that opposition parties could table their own no-confidence debate in the UK government.

This is due to the lack of popularity in UK Prime Minister Theresa May’s negotiated UK-EU Brexit deal, which lacks the support to pass through UK Parliament.

Even if Prime Minister May is able to secure additional assurances from the EU on her deal, analysts still doubt the deal will be able to pass. Essentially, this means the Brexit outlook is still filled with uncertainties.

Sterling will remain highly sensitive to UK political and Brexit developments. Meanwhile, the Australian Dollar will also be sensitive to political developments: particularly those regarding US-China trade relations.

Any further signs of progress or de-escalation in US-China trade negotiations could bolster risk-sentiment and put further pressure on the Pound to Australian Dollar (GBP/AUD) exchange rate.