During Tuesday’s European session the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate softened by around -0.7%. This was mostly in response to traders halting the Brexit selloff in UK stocks, but also amid concerns that Sterling’s initial depreciation was overdone.
Overnight the ‘Aussie’ (AUD) advanced versus a number of its major peers thanks to the resumption of risk-on trade. Sentiment improved as global equity markets halted the Brexit selloff and commodity prices advanced.
However, ‘Aussie’ gains were somewhat short-lived despite comparative US Dollar weakness and expectations that Brexit uncertainty will see the Federal Reserve delay a cash rate increase for a significant period.
The AUD downtrend can be linked to domestic political uncertainty as we draw ever closer to the federal election. Thus far polls have indicated that the Coalition will be victorious.
After the announcement that the UK voted to exit the EU, demand for the Australian Dollar dampened considerably thanks to its safe-haven credentials.
The Reserve Bank of Australia (RBA) will be hoping for a resumption of risk-off trade given that persistent overvaluation has been a major concern for a considerable time.
The Australian Dollar to Pound Sterling (AUD GBP) exchange rate was trending in the region of 0.5519 during Tuesday’s European session.
After the initial shock of the UK’s EU exit subsided the British Pound recovered a fraction of its losses during Tuesday’s European trade. This was despite several credit agencies downgrading the UK’s credit rating.
Sterling tracked the rise in global equity values and commodity prices. However, the most likely cause for the moderate rebound was traders taking advantage of its comparatively low trade weighting.
Most analysts agree, however, that risks for Sterling remain firmly on the downside, with expectations of massive losses in the face of political and economic uncertainty.
The political landscape in the UK has been forever changed, with the two major political parties seeing strained internal divisions. The UK’s vote to leave the EU is thought to be a reaction to deepening mistrust of politicians and the political institution.
Much will depend on how quickly the UK can begin the process of leaving the EU and how well politicians can ensure that the split is amicable so as to allow trade to continue.
Given that market sentiment has been the principle driver of currency movement over the past few days, there is a high likelihood that domestic data will continue to have a limited impact.
With that said, those invested in the ‘Aussie’ will be interested in May’s monthly New Home Sales data due for publication later this morning.
Conversely, British data won’t be of any real interest to traders seeing as results could be considered obsolete now that the UK’s economy has been so dramatically altered.
The Australian Dollar to Pound Sterling exchange rate was trending within the range of 0.5512 to 0.5572 during Tuesday’s European session.
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