GBP/AUD FORECAST UPDATE #2: The UK Pound to Australian Dollar exchange rate failed to recover Monday’s losses as the session wore on with Sterling last seen trading at A$1.81071, down 0.31% but partially recovered from a session low just above A$1.805.
Risk-off was the dominant theme for currency markets on Monday while the GBP was facing the double-whammy of resurgent no-deal Brexit fears as Tory Brexiteers continue to insist the UK will leave the common currency bloc on October 31st. While there was some positivity out of a meeting between PM Johnson and the EU’s Juncker in which the leaders agreed to daily Brexit talks moving forward, time’s quickly running out to secure an outcome other than no-deal.
«The fact remains there is still a decent chance of Britain not able to secure a deal and that is prompting investors to take profits after last week’s rally,” wrote currency strategist Thu Lan Nguyen of Commerzbank.
For the Aussie, RBA minutes are due overnight which should set the tone moving forward while currency markets as a whole will likely take their cue from geopolitical risks – with a focus on the US response to the attacks on Saudi oil refineries – as well as central bank policy with the Fed and Bank of England releases likely to impact the cross.
GBP/AUD FORECAST UPDATE: The UK Pound to Australian Dollar exchange rate fell sharply into Monday’s European session with Sterling last seen trading at A$1.80664, down 0.53% after slowing out last week at a post-August best.
Risk-off was prevalent on Monday with Saudi oil attacks sparking a fresh hunt for safe-haven assets and leaving both the Aussie and GBP muted against major peers – particular oil exporters (CAD, NOK) and safe-havens (CHF, JPY).
For Sterling, uncertainty ahead of PM Johnson’s meetings with EU leaders was also weighing. While the arch-Brexiteer has said he is committed to striking a deal, he has also promised to leave the EU by October 31st with or without one and according to recent comments from EU officials there’s still a «very wide gap» between the UK and EU.
This week will see the Bank of England’s latest monetary policy decisions with the Monetary Policy Committee (MPC) expected to hold rates unchanged amid Brexit while stressing the downside risks around the UK’s withdrawal from the EU as well as global risks weighing on the outlook.
Disappointing overnight Chinese data doesn’t bode well for the Aussie Dollar, however Brexiting and geopolitical risks elsewhere could offset AUD weakness stemming therefrom while the key event risk for the AUD this week is around the latest Reserve Bank of Australia meeting minutes.
«Weaker industrial output numbers out of China overnight are not good news to the Aussie dollar, which has enjoyed a long rebound in risk sentiment in the past weeks,» wrote ING FX strategist, Francesco Pesole, adding «Tonight, the Reserve bank of Australia will release the minutes of the September monetary policy meeting, which should continue to highlight the Bank’s stance in favour of an extended period of low rates, with no detail about the timing of the next rate cut. Our economics team is not expecting more cuts by year-end, but we maintain a bearish bias on the AUD.»
Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Reaches Best September Levels
Despite the Australian Dollar’s fairly strong demand on trade developments last week, the British Pound to Australian Dollar (GBP/AUD) exchange rate ultimately spent most of the week higher due to fresh UK data and hopes for Britain to avoid a worse-case scenario no-deal Brexit. Looking ahead, investors will be focused on continued political and trade developments, as well as data that could influence central bank speculation.
After opening last week at the level of 1.7934, GBP/AUD spent most of last week trending higher due to UK data and Brexit speculation.
On Friday, GBP/AUD saw a surge in demand on Brexit speculation, and hit a high of 1.8132. This was the best level for the pair since the end of August, half a month ago.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Sustains Gains on Hopes for UK Resilience and Softer Brexit
Last week saw US-China trade relations seemingly improve, which was big news for investors of trade-correlated currencies like the Australian Dollar.
However, despite this the biggest news for GBP/AUD throughout last week was the Pound’s big movements in reaction to domestic growth news and the latest speculation in UK politics and Brexit.
At the beginning of the week, the Pound saw a jump in demand inspired by news that Britain’s economy was likely to avoid an imminent recession. Since then, Sterling has generally trended above the week’s opening levels.
Demand for Sterling saw another surge on Friday, as investors speculated that the UK government could agree on a softer version of Brexit after all. According to Kit Juckes at Societe Generale:
‘There is a tiny chink of light from under the Brexit door. There’s a better than 50/50 chance right now we’ll get a deal. I think eventually we’ll get a deal similar to Theresa May’s and then we’ll have a referendum on whether or not to accept it.’
Some analysts advised caution over Sterling however, amid doubts that its Friday rally would last.
The Australian Dollar’s Friday losses were mostly due to Pound strength, as the trade-correlated currency has been generally appealing this week.
Signs that the US and China were cooperating more ahead of anticipated trade negotiations over the next month have left the Australian Dollar stronger, due to Australia’s close trade ties with China.
Pound (GBP) Exchange Rate Forecast: Brexit Developments and Bank of England (BoE) in Focus
With UK Parliament still likely to remain prorogued until October, UK political developments may not be as hectic next week.
Still, with the current Brexit date now just a month and a half away, Pound investors will be carefully watching for potential developments in UK politics and Brexit.
UK data due on Wednesday and Thursday could also influence Sterling. UK inflation data will come in on Wednesday, and retail sales data follows on Thursday.
The Bank of England’s (BoE) September policy decision will also be held on Thursday. If data or political news causes the BoE to shift its economic or monetary policy outlooks, the Pound is likely to be heavily influenced.
Australian Dollar (AUD) Exchange Rate Forecast: RBA Speculation and Trade Developments to Cause Movement
The Reserve Bank of Australia’s (RBA) latest meeting minutes report will be published on Tuesday. This, as well as key Australian job market data due later in the week is likely to influence bets on how likely the bank is to become more dovish going forward.
RBA interest rate cut speculation remains high due to mixed Australian data recently.
On top of central bank speculation, the Australian Dollar will be influenced by shifts in market risk and trade-sentiment next week.
China is Australia’s biggest trade partner, so upcoming Chinese retail sales and production stats, as well as of course any US-China trade war news, could also influence the Pound to Australian Dollar (GBP/AUD) exchange rate next week.
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