The Pound has slumped by -0.4% against the Australian Dollar today, having been weakened by pre-election jitters.
With less than a week to go before the ballots are counted, the Pound could face high volatility when the results come in on June 9th.
Traders generally consider a Conservative majority to be the most stable outcome, as it would supposedly grant greater negotiating power in Brexit negotiations. In addition, a blue majority in the Commons would make it easier to pass new laws and reform old ones.
Analysts are not so optimistic about the other type of possible Conservative victory, a minority government. Misleadingly, this would mean that the Conservatives would still have the most overall seats, but only just enough to legally rule on their own.
According to Reuters’ William James and Patrick Graham, an only-just Conservative victory could make Brexit talks tougher;
‘If May does not handsomely beat the 12-seat majority Cameron won in 2015, her electoral gamble will have failed, her ability to drive Brexit reform through parliament will be diminished and she will go into talks later this month looking weaker’.
In the long-term, however, this could mean good news for Brexit, as if May is unable to make extreme demands in negotiations then she may have to opt for ‘soft Brexit’, instead of ‘hard Brexit’.
The former is considered a less traumatic experience for the UK economy, as it involves keeping ties with the EU through trade and migration links. If the election does push Theresa May into choosing soft Brexit, then the Pound could advance strongly against the Australian Dollar.
Future Australian Dollar demand could be tied to how a recent US policy decision affects world commodity markets.
Donald Trump has declared that he will be taking the US out of the Paris Agreement on climate change, a process that could take three to four years.
The news has been greeted with dismay by environmental groups, as it indicates that the US will be moving back into environmentally damaging areas like mining and fossil fuel extraction with renewed vigour.
This matters for the Australian economy, because with the US economy more geared up to extracting and selling natural resources, this could cool global commodity prices.
One of Australia’s key economic imports is iron ore, so if the new US push for mining activity targets this particular commodity then the Australian economy could suffer.
Recent Interbank GBP AUD Exchange Rates
At the time of writing, the Pound to Australian Dollar (GBP AUD) exchange rate was trading at 1.7404 and the Australian Dollar to Pound (AUD GBP) exchange rate was trading at 0.5744.
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