The sterling to Australian dollar interbank exchange rate has reached 1.9327 today. This is a new 41-month high, its strongest since the day after the UK’s Brexit referendum, on June 24th 2016.
The GBP to AUD interbank exchange rate has hit this new 41-month high, because markets continue to factor in a high probability that Prime Minister Boris Johnson’s Conservatives will win a majority of seats, when Britons go to the ballot boxes this Thursday.
In particular, the odds of a Tory majority win now stand at 80%, 15% higher than a week ago, and the most since the election campaign began.
In general, investors want a single political party to clearly win this Thursday’s election, to finalise Brexit, begin negotiating the future UK/EU trade deal, and provide greater certainty for British businesses. So investors’ expectation of a clear result has strengthened the pound.
UK GDP Unexpectedly Flat in October
However, turning to the UK economy, it’s worth noting that Britain’s GDP (Gross Domestic Product) was flat at 0.0% in October, according to the Office for National Statistics (ONS) this morning.
This was below economists’ forecasts for a 0.1% rise in GDP growth, so tells us that Britain’s economy underperformed at the start of Q4 2019, between October and December. What’s more, according to watchdog IHS Markit’s PMIs (Purchasing Managers’ Indices) last week, the UK might have contracted in November too.
If so, this would highlight that the Brexit uncertainty continues to weigh on the UK economy, raising the risk of a contraction in the last three months of the year. This might influence sterling too.
Australia’s Economy Tipped to Weaken in 2020
That said, looking Down Under, Australia’s economy is forecast to weaken further in 2020. According to a recent International Monetary Fund (IMF) report, Australia’s could be one of the slowest developed economies next year, as the US/China trade war weighs on confidence and investment.
As a result, the Reserve Bank of Australia (RBA) is being tipped to cut interest rates to a new all-time low of 0.25%, their effective lower bound.
However, while this would cut the cost of a loan in the antipodean nation, the fact that interest rates are so low could simultaneously concern Australia’s businesses and consumer, thereby weakening the AUD.
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