The outlook for the pound to the Australian dollar was dealt a small favour today, with the Brexit Party stating they would not contest Conservative held seats, triggering a rise in optimism that the Brexit Withdrawal agreement would be approved should Boris Johnson achieve a majority. Expectations for the pound against the Aussie dollar are linked to the outcomes on Brexit and the UK election, the UK’s first December election since 1923, which is likely to shape the next stages on Brexit.
Pound to Australian Dollar exchange rates pushed higher
GBPAUD exchange rates have been trading today at 1.8755 on the interbank rate, presenting some of the better times to buy Australian dollars with pounds since the EU Referendum vote. Whilst it has been higher, reaching 1.9067 on the 16th October, GBPAUD levels have also been much lower at 1.59 on 16th March 2017, the rate was over 2 in the month of the EU Referendum, June 2016.
US China trade war key influencer on GBPAUD exchange rates
The pound has been a clear contributor to the behaviour on the pairing but there is also the ongoing performance of the Australian dollar and the Trade Wars. The Aussie dollar bears correlation to sentiments on global trade, with investors fears over the Trade Wars generally seeing the Australian currency losing value, whilst expectations that there could be more positive news and agreement between China and the US ahead, seeing the Aussie dollar rise in value.
Trump dismissed the latest reports if a deal being reached as not wholly correct, undoing some of the recent strength the Australian dollar had seen against the pound. Sterling also benefitted from signs the UK had escaped a recession, although the political signs ahead might be more interesting and carry more weight from the market.
How could the UK general election affect exchange rates?
The upcoming UK election is clearly an important event, with the power to influence GBPAUD levels. Whilst a Boris victory and majority might see the pound rise, it is also arguable that a hung parliament might trigger sterling strength in that it makes no-deal less likely, since the likely split on a hung parliament between Lab/SNP/Libs might warrant more delays. A Conservative minority government might also struggle to get a deal through and the further postponement of no-deal might help the pound.
Of course, we can also paint some sterling negative situations if the markets react badly to either the potential for Boris Johnson’s majority to keep no-deal as an option, or the market dislikes a Labour majority and their spending plans. By nature, a hung parliament could be negative for sterling, although by it helping postpone no-deal as above, it might work out as a more positive effect for the pound, it just depends how the market views it on the day.
We know from previous political events like the 2010, 2015 and 2017 elections, the pound can be volatile around these events. We also know the power of the Referendum on sterling exchange rates too, the combination of factors here might see the potential for increased volatility.
Thank you for reading and for some more detailed commentary about what might lie ahead, please do contact our team to discuss further.