- GBP AUD Exchange Rate Drops as ‘Aussie’ Sentiment Returns – Australian Coalition near victory
- Sterling (GBP) Plummets since Tuesday on Brexit Fears – Markets rush to protect their assets
- Australian Dollar (AUD) Strengthens Wednesday – Election outcome could soon be known
- Forecast: ‘Hung Parliament’ Still Possible for Australia – Vote counting is ongoing
GBP AUD Exchange Rate Recovers Slightly on Thursday
The GBP AUD exchange rate attempted recovery on Thursday, as investors bought Sterling from its worst levels against a weakened Australian Dollar.
News that NIESR had claimed that the UK economy had contracted in June weighed on Sterling appetite, making it difficult for it to make a solid recovery.
However, sentiment towards the Australian Dollar was also poor due to news that the S&P had lowered Australia’s credit rating outlook from steady to negative. As a result, risk-hungry investors sought out more appealing alternatives like the New Zealand Dollar.
Australian vote counting will continue during Friday’s Asian session, but is unlikely to quickly reach the conclusion markets hope for with a ‘hung parliament’ still possible.
Meanwhile in UK leadership news, Britain’s Conservative leadership contest has been narrowed down to its two top candidates; Theresa May and Andrea Leadsom. They will campaign for the next two months before a winner (and new Prime Minister) is voted in by all Conservative members.
At the time of this update, the Pound to ‘Aussie’ exchange rate trended in the region of 1.7265.
(Previously updated 15:50 06/07/2016)
GBP AUD Falls Lower Throughout Wednesday Session
Sentiment towards the ‘Aussie’ continued to climb while Pound sentiment fell on Wednesday, as GBP AUD dropped to levels around 1.7200.
Since M&G and Aviva suspended withdrawals on Tuesday, other major property funds have followed by suspending trading on Wednesday afternoon.
Henderson, Columbia Threadneedle, and Canada Life are now frozen, for what some analysts predict could last months. Many analysts expect that other property funds will follow in the coming days.
(Published 09:51 06/07/2016)
The GBP AUD exchange rate plummeted on Tuesday despite high uncertainty in Australia, as UK markets entered panic mode and attempted to protect their assets from the economic effects and concerns of a Brexit.
While it dropped slower than some other Pound pairings, GBP/AUD lost around two cents throughout Tuesday and continued to fall on Wednesday in response to news that a majority victory in Australia was still possible. The pair trended in the region of 1.7360 at the time of writing after recovering slightly from 1.7314 – its lowest point since November 2013.
Sterling (GBP) Hit by Brexit-Inspired Market Panic
The Pound plummeted across the board during Tuesday trade as markets scrambled to protect their assets in any way they could.
Following statements from Bank of England (BoE) Governor Mark Carney that Brexit concerns were becoming reality since the result was announced in late June, investors have begun to suspect that other bearish Brexit forecasts, such as a possible recession, could also come true.
Perhaps the biggest shock to markets was the news that major property funds had been suspending withdrawals since the Brexit result was announced. The Guardian reports;
‘The property funds barring withdrawals included M&G Investments, which runs a £4.4bn property fund, and Aviva Investors, whose fund has assets worth £1.8bn.
The moves came one day after Standard Life banned its clients from doing the same on its £2.9bn property fund, with the firms saying they had acted to stop a rush of withdrawals following “extraordinary market circumstances”.
Investors have been buying into commercial property funds to try to benefit from the 40% rise in commercial property prices since the 2009 crisis. But concerns that the market may have peaked before the referendum – plus fears on the impact of the Brexit vote on the UK economy – has triggered nervy investors to ask for their cash back.’
In political news, the Conservative leadership competition whittled down from five to three on Tuesday evening. Liam Fox was eliminated from the running due to having the lowest number of votes, while Stephen Crabb voluntarily dropped out due to his relatively low support.
Both MPs pledged their support towards frontrunner Theresa May, who won over 50% of the votes from around 330 Conservative MPs.
Australian Dollar (AUD) Sturdier as Markets Hope for Election Conclusion
The Australian Dollar was highly weak and volatile during Tuesday trade, only falling against the Pound due to Sterling’s lack of appeal.
News that the Reserve Bank of Australia (RBA) had left the key interest rate frozen at its 1.75% low did little to reassure markets due to hints that the bank was seriously considering stimulus and easing measures for its August policy meeting.
The ‘Aussie’ also struggled to hold its ground amid political uncertainty. Vote counting for Saturday’s Australian general election had reached no majority conclusion as of Tuesday, leaving markets to fear that a ‘hung parliament’ was possible.
While this remains a possibility, with both the Coalition and Labor parties extremely close as vote counting continues, markets experienced a small reprieve during Wednesday’s Asian session.
According to the BBC, votes still incoming by post and other late votes have led to the current ruling party, the Liberal-National Coalition, coming out with a small lead.
‘Counting continued on Wednesday in electorates where the result has been too close to call.
The Australian Broadcasting Corp. (ABC) says the government has won 71 seats in the lower house and could reach an absolute majority of 76.’
As a result, hopes that a ‘hung parliament’ could be avoided and that the government could return to normalcy by August increased, improving ‘Aussie’ sentiment.
GBP AUD Exchange Rate Forecast: Australian Vote-Counting Continues
With Wednesday’s Asian session now drawing to an end and no Australian party winning a majority as of yet, voting looks to continue well into Thursday at the very least, and likely longer if votes remain as close as they have.
If either party cannot reach a majority of 76 as votes continue to trickle in over the coming days and weeks, a ‘hung parliament’ could be on the cards for Australia.
This would mean an extended period of political uncertainty, as well as the possibility of a second general election. As such, the Australian Dollar would struggle and Reserve Bank of Australia (RBA) rate cut bets would likely increase.
The Pound, on the other hand, is highly likely to remain weighed down by investors looking to protect their assets throughout the week. Now that investors are increasingly unable to withdraw money from property funds, other assets like the FTSE and the Pound are likely to drop instead.
As a result, Sterling is likely to remain highly pressured and fail to capitalise on the uncertainty surrounding the Australian Dollar.
At the time of writing, the GBP AUD exchange rate trended in the region of 1.7373, while the AUD GBP exchange rate traded at around 0.5755.
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