The Pound to Australian Dollar exchange rate edged higher during Monday trade and continued to trend near the pair’s best levels in months.
A lack of UK data due for publication until Thursday means the Australian Dollar’s strength is more likely to influence GBP AUD until then.
Tuesday’s Australian retail sales stats from March could influence Australian Dollar strength. Any increase in demand for risky currencies could also bolster the ‘Aussie’.
[Published 10:42 BST 08/05/2017]
Recent weeks have seen the Pound to Australian Dollar (GBP/AUD) exchange rate record strong gains due to UK general election anticipation, stronger British ecostats and a much weaker Australian Dollar.
GBP AUD climbed from 1.72 to 1.74 last week and on Monday morning the pair tested highs of 1.75 but fluctuated slightly due to improved Australian confidence data.
Demand for the Pound has been stronger since UK Prime Minister Theresa May announced that Britain would hold a general election on the 8th of June, now just a month away.
Investors have been hoping that May will increase the Conservative party’s Parliamentary majority in the election to make for a smoother Brexit negotiation process.
During last week’s local elections, which saw citizens voting for members of their local councils, the Conservative party stole a significant number of seats. This increased hopes among markets that the general election would go similarly and lead to an increased majority for May’s government.
Sterling benefitted from this news, as well as last week’s UK April PMIs from Markit which all came in above expectations. Manufacturing printed at a three-year-high, construction a four-month-high and the services PMI saw its best figures since 2015.
As a result, investor concerns about Britain’s economy slowing down were allayed somewhat. Analysts still expect inflation and slower wage growth to cause consumers to rein in spending this year and slow the economy. However, for now markets are hopeful for continued strong performance in Q2 2017.
While investors are more interested in the Pound for the time being, there is potential for it to weaken in the mid to long-term.
Full formal Brexit negotiations are expected to begin over the next month or so. Tension between Theresa May and European Commission leader Jean-Claude Juncker in recent weeks has put pressure on Sterling and reminded traders that Brexit negotiations won’t necessarily go well all the time.
If UK-EU tensions increase, the Pound outlook will worsen. Additionally, if the Conservatives put in a strong performance in the upcoming election but May’s government still pushes for a ‘hard Brexit’, Sterling investors may be disappointed.
However, Sterling may find it easy to hold most of its recent gains against the Australian Dollar unless the ‘Aussie’ outlook improves soon.
Demand for the Australian Dollar has been poor due to a cautious Reserve Bank of Australia (RBA), mixed Australian ecostats and poor commodity news.
Monday’s Asian session continued the trend of mixed Australian data with disappointing Australian building approval data from March, but strong April business confidence data from NAB.
Australian Dollar investors will be keeping an eye on Australia’s house prices and labour market, as well as prices of commodities like iron ore.
Investors hoping for the Australian Dollar to benefit from iron ore news may be waiting a while however, as hopes for an iron ore revival faded this week due to yet another drop in the value of Australia’s most lucrative commodity.
At the time of writing this article, the Pound to Australian Dollar exchange rate trended in the region of 1.74. The Australian Dollar to Pound exchange rate traded at around 0.57.
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