Trump trade optimism sends the Pound to AUD rate lower

Trump trade optimism sends the Pound to AUD rate lower

Hopes of trade war resolution increase

The pound (GBP) to Australian dollar (AUD) rate headed north yesterday morning, as persistent fears of a no-deal Brexit were outweighed by news that Australian interest rates could be cut further. This, coupled with weaker-than-expected first quarter Australian house price index figures, caused the AUD to slip to its lowest level in around a decade.

A phone call between US President Donald Trump and Chinese President Xi Jinping enabled the AUD to regain some momentum later in the day. Hopes of a resolution to the US-China trade war were given a boost after Mr Trump tweeted: “Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.” The good news for the AUD was bad news for the value of the GBP to AUD pair, which slipped below $1.83.

Boris Johnson marches on

Dominic Raab was the latest candidate to be knocked out of the Tory leadership race yesterday, following the second ballot of MPs. This leaves five candidates in the battle to be the next PM, but only one serious contender after Eurosceptic, Boris Johnson achieved another landslide victory. And with most of Mr Raab’s supporters expected to transfer their votes to Mr Johnson, the former Foreign Secretary’s charge for Number 10 shows no signs of being derailed.

The pound was lent some support by Mr Johnson’s Brexit rhetoric during a post-ballot TV debate when he softened his stance on a no-deal. The third ballot of MPs takes place today, with the candidate with the lowest number of votes eliminated.

Looking ahead

The economic calendar is dominated by releases from the UK this week. In terms of potential currency market movement, the UK Consumer Price Index (CPI) is the pick of the bunch this morning – if the CPI rises, it could provide the GBP with some much-needed support; conversely, if it softens, a potential interest rate rise could be put on hold and the value of the GBP might fall.

And there’s no let-up tomorrow when the Bank of England (BoE) present another raft of figures: BoE Asset Purchase Facility, BoE Interest Rate Decision and the BoE MPC Interest Rate Vote. A busy day at the central bank also sees the release of its latest meeting minutes, before an address by Governor, Mark Carney.

Comments from Philip Lowe in the early hours of the morning could inspire more market movement. If the Governor of the Reserve Bank of Australia continues banging the drum for further loosening of monetary policy, the AUD could come under additional pressure. All that’s left in the diary Down Under this week is Friday’s set of Australian Manufacturing and Services PMIs.

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