Pound to Australian Dollar Exchange Rate Could See Further Gains on Political Concerns
While the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was one of the few major Pound (GBP) exchange rates to see losses last week, the pair had recovered those losses by this morning. Political jitters are keeping pressure on the Australian Dollar (AUD).
Last week saw GBP/AUD briefly slump to 1.7871, its lowest levels in almost two months. Ultimately though, the pair slipped only half a cent from 1.8088 to 1.8015 and at the time of writing on Tuesday morning had recovered most of those gains.
Whether or not GBP/AUD recovers further depends largely on factors like risk-sentiment and political developments.
Investors have been more hesitant to take risks again this week so far, amid uncertainties surround the US 2018 Mid-Term Elections, as well as concerns about US-China trade relations.
Meanwhile, the Pound (GBP) has benefitted from Brexit speculation and if there are any more solid Brexit developments the Pound to Australian Dollar (GBP/AUD) could be in for further gains.
Pound (GBP) Exchange Rates Climb on Brexit Speculation despite Analyst Caution
Investors bought the embattled Pound (GBP) on Monday, in reaction to a weekend report claiming that the UK and EU were closing in on a broad Brexit deal and that it may be softer than markets expected.
The report, from the Sunday Times, claimed that the EU was prepared to offer a UK-wide customs union deal in order to get around the issue of Ireland’s border. It would allow Northern Ireland to maintain soft borders with Ireland and the UK.
Sterling surged as soft Brexit hopes rose, despite analysts expressing doubt that EU negotiators would be willing to make such major concessions in talks.
In response to the report, UK and EU officials attempted to play down its validity, and separate reports said that many hurdles still remained in talks. Analysts generally advised caution, but noted that any solid news of a deal could cause Sterling to soar.
Concerns remain that a deal may not be reached in time to hold an emergency summit before the end of November.
Despite this though, Sterling has been stronger on hopes that negotiators are still becoming more flexible as they scramble to seek a deal rather than allowing talks to collapse.
Australian Dollar (AUD) Exchange Rates Slides despite Optimistic Reserve Bank of Australia (RBA)
Investors have been hesitant to keep buying the Australian Dollar (AUD) this week, despite last week’s rise in risk-sentiment and this week’s generally optimistic Reserve Bank of Australia (RBA) policy decision.
So far this week, market appetite for riskier trade-correlated currencies like the Australian Dollar has been limited by political jitters and tensions.
In the US, investors are anxious about how the US Mid-Term Elections may unfold, with the Democratic Party potentially in position to take the House of Congress.
Meanwhile, hopes that the US and China could be headed towards a resolution over their long-lasting trade spat weakened, as analysts said a deal was likely still some ways off.
Due to the risk-aversion, the Australian Dollar was unable to benefit from news that the RBA had raised its Australian growth outlook. The RBA left monetary policy frozen as expected and remained cautious about global trade issues.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Could Climb Further on US Election Shock
Investors may be even less hesitant to take risks in the coming days, depending on the outcome of the US 2018 Mid-Term Elections.
The relatively risky trade-correlated Australian Dollar may be sold in favour of safer currencies like the Japanese Yen (JPY) if election news indicates that US President Donald Trump’s fiscal policy plans may face additional obstacles.
Any developments regarding US-China trade relations may also influence risk-sentiment and the Australian Dollar.
The Pound, on the other hand, may see a surge in demand this week if there are any solid signs that a UK-EU Brexit deal could be reached before the end of the month.
Of course, signs that Brexit negotiations could fall through instead would cause the Pound to shed much of its recent gains.
Essentially, while Australian home loans data and UK growth data will be published later in the week, this week’s potential political developments are much more likely to be influential for the Pound to Australian Dollar (GBP/AUD) exchange rate’s outlook.