Pound to Australian Dollar forecast: Political uncertainty eases in the UK

Australian Dollar Retreats Against the Pound as Trump Threatens US-China Trade War

The Boris Johnson factor

The political uncertainty that was rife prior to the Tory leadership contest eased on Thursday after the first round of voting produced a potential one-horse race. Boris Johnson’s convincing victory, which saw him win 71 more votes than his closest rival, helped temper the uncertainty and provided the pound (GBP) with a slight upswing of support.

While an overall victory for Mr Johnson – a Eurosceptic – isn’t necessarily the preferred outcome for GBP investors – and those hoping for a strong pound to Australian dollar (AUD) rate – his assertion that he’s “not aiming for a no-deal outcome” provided some relief.

Will interest rates be slashed Down Under?

The Governor of the Bank of England, Mark Carney made no mention of monetary policy during his latest speech on Friday, ahead of the bank’s next interest rate announcement on Thursday. Instead, he focused on the lack of diversity within the financial services industry; a worrying trend that can lead to bias in decision making.

The Australian dollar (AUD) was feeling the weight of soft domestic data and the fallout from the US-China trade standoff as last week drew to a close. This fuelled expectations that the Reserve Bank of Australia (RBA) will implement aggressive rate cuts to support the economy.

The UK economy greeted the start of the new week with a mini fist pump, following the release of the Rightmove House Price Index overnight. Despite a backdrop of Brexit-fuelled political uncertainty, the national average has risen to within £91 of a new record. Thanks largely to new all-time price highs in East Midlands, North West, Wales and Yorkshire and the Humber – regions that are outperforming the national average.

Looking ahead

The UK Inflation Report Hearings dominates the economic calendar for the GBP to AUD pair today. Any bullish comments around the health of the UK economy would be welcomed by the GBP. Investors will be scouring the RBA’s meeting minutes tomorrow for any signs of additional rate cuts. Next up is the Australian House Price Index, with falling prices forecast to stable – an outcome that would lend support to the AUD.

The next round of Conservative Party voting is pencilled in for tomorrow, in which candidates require at least 33 votes to progress to another ballot the following day. As things stand, betting market odds predict there’s an 80% chance Mr Johnson will become the next prime minister when the overall winner is announced towards the end of July.

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