The pound to Australian dollar exchange rate has drifted lower after what had been a strong rally in recent weeks. There are two principle drivers for the GBP vs AUD exchange rate and any developments are likely to have a major influence on the pair. Brexit remains central to the price of sterling and the UK general election which will be held 12th December will almost certainly carry major influence on how Brexit unfolds. A Conservative majority could help drive the pound higher but in this particular election it is almost impossible to predict how the electorate will vote on the day.
How could a hung UK Parliament effect Brexit?
A conservative government would look to pursue the newly struck deal under Boris Johnson’s leadership which would give some certainty for business. A hung parliament however could result in more uncertainty and delay. This week should see the announcement of all candidates and the different parties they represent. The Brexit Party is one force that is yet to be determined in that it is not clear how many candidates will be put forward. The Leave vote would likely be split between the Conservative and Brexit parties and this could see a hung parliament look more likely. A hung parliament could throw up all sorts of implications including the prospect of coalition between a number of smaller parties including the Scottish Nationalist Party and Liberal Democrats. The markets may not welcome such a prospect and could result in a drop in the price of GBP to AUD.
Those looking to either buy or sell Australian dollars would be wise to consider planning around this hugely important election as the market movement could be severe. There could be better buying or selling opportunities depending on that election result.
US – China trade war deal?
The US China trade war meanwhile continues although there have been reports a preliminary deal could be well underway. The “Phase One” element to an overall deal is expected to calm financial markets going forward and this may already be proving beneficial for the Australian dollar. For the time being there are concerns that the trade dispute has been having a negative impact on business confidence as well as investment into Australia. Any actual confirmed agreement could see further gains for the Australian dollar.
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