The Australian Dollar has bounced back against the Pound despite a slightly weaker outlook on Chinese growth which is raising concerns for the global economy. Rates for GBP AUD have moved lower to 1.77 for the GBP AUD pair creating some of the best opportunities for some time. It was only a few months ago when rates for GBP AUD were trading above 1.84 for the pair.
Much of the recent decline for the Pound against the Australian Dollar has stemmed from sterling weakness over Brexit and political uncertainty. There is now unlikely to be a breakthrough for the Pound with the summer parliamentary recess starting tomorrow which leaves an uncertain period ahead until the end of August. After a number of high profile resignations from within the Conservative Party there is a real risk of a general election or leadership challenge which would likely see the Pound fall lower on additional uncertainty. The prospect of a no deal Brexit is also seeing the Pound come under additional pressure.
The Aussie has actually been weakening against the US Dollar over these last 6 weeks on the back of the trade war developments highlighting how much of an impact this threat is having on the Aussie. The reason why the Pound isn’t trading at higher levels against the Australian Dollar is due to Brexit but also due to a weaker outlook on growth and inflation from the Bank of England.
Australian inflation data is released on Wednesday and could be influential for the Reserve Bank of Australia (RBA). The RBA have signalled that interest rates are unlikely to climb until 2019 although any pick up in inflation could see the Aussie drive higher. In my view though the RBA will be very unwilling to jump too soon and raise interest rates. The ongoing trade tensions between the US and China are likely to continue to weigh heavy on the Aussie Dollar and could result in further dollar weakness.
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