As political jitters waned, the Pound to Australian Dollar exchange rate continued to edge lower throughout Monday trade. While the pair briefly slipped to 1.68 in the afternoon, the pair remained well above last week’s lows of 1.65.
Demand for the Australian Dollar was also slightly bolstered this week by the latest Australian housing market forecast from UBS. UBS economists believe the house price boom has finally peaked and will begin to slow and fall in the coming years.
Some analysts have argued this could influence the Reserve Bank of Australia (RBA) to think about hiking interest rates in the foreseeable future.
[Published 10:32 BST 24/04/2017]
The Pound to Australian Dollar exchange rate slipped on Monday as risk-sentiment finally began to improve, but the pair still held most of last week’s gains and was less than a cent away from its best levels since the beginning of the year.
Last week saw GBP AUD surge from 1.65 to 1.70. The pair failed to hold the 1.70 high and has trended in the region of 1.69 since the weekend.
The move higher at the start of last week was largely due to strength in the Pound. The long-term GBP outlook improved considerably when it was suddenly announced that Britain would be holding a general election on the 8th of June.
Investors perceive increased stability and a smoother Brexit process if UK Prime Minister Theresa May is able to increase the Parliamentary majority of her Conservative party.
The Australian Dollar, on the other hand, has seen poor performance in recent weeks due to a lack of interest in risk-correlated currencies in the foreign exchange market.
The risky ‘Aussie’ has been undermined by geopolitical concerns and poor commodity market data. In particular, high political uncertainty in major economies such as the US and the Eurozone have made markets risk-averse.
Tensions have been rising between the US and North Korea. Both nations have indicated that military action may be possible if the situation between the nations escalates.
Eurozone political concerns have largely revolved around the possibility that one of the bloc’s key nations could pull out of the Euro and throw the currency into crisis.
This has recently weighed significantly on global risk-sentiment, particularly as the first round of the French Presidential election neared and two major candidates took anti-EU campaign stances.
However, Sunday saw the first round of the French Presidential election come and go, and the outcome wasn’t as anti-EU as many investors feared. As a result, markets became a little hungrier for risk when markets reopened.
As appetite for the risky ‘Aussie’ improved, GBP AUD was pushed from its highs.
The risk-sentiment outlook continues to put significant pressure on the Australian Dollar, but demand for higher-risk currencies will improve further if political jitters cool in the Eurozone and the US.
The second round of the French Presidential election takes place on the 7th of May. If pro-EU centrist Emmanuel Macron wins the election, ‘Frexit’ concerns will essentially vanish and risk appetite will increase.
Things are even more uncertain in the US however. Investors are hoping geopolitical tensions between the US and North Korea (as well as lingering tensions between the US and Russia and the US and Syria) will cool.
Domestic factors can also improve the Australian Dollar outlook slightly even if risk-sentiment remains low.
Wednesday’s Asian session will see the publication of Australia’s Q1 2017 Consumer Price Index (CPI) results. If Australian inflation rises further than expected, GBP AUD is likely to see further losses this week.
However, so long as markets remain averse to risk, the Pound to Australian Dollar’s loss potential is limited.
At the time of writing this article, the Pound to Australian Dollar exchange rate trended in the region of 1.69. The Australian Dollar to Pound exchange rate trended in the region of 0.59.
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