The Australian Dollar Pound exchange rate has experienced a rather large decline over Monday and Tuesday this week as the markets reacted to the news that home secretary Theresa May is the next Prime Minister of the United Kingdom.
On the announcement that the only viable competition to May’s power bid, Andrea Leadsom, had dropped out of the leadership race, the Pound saw significant rallies against every major currency peer.
However, gains for Sterling were capped against the Australian Dollar thanks to a previous rise in global commodity prices and strengthened global equities. As a result the pairing managed to hold relatively steady during Tuesday’s session.
The Australian Dollar Pound exchange rate currently trades at 0.5753 after rallying almost 0.50% over the day on increased risk-appetite and mounting post-Brexit worries.
After its recent rallies thanks to stronger global equities and rising commodity prices, the Australian Dollar has put on a stellar performance over the past couple of sessions.
Despite sliding from a two-year high against the reinvigorated Pound, the ‘Aussie’ remained strong against other majors and appears to be holding onto its gains today. A previous major commodity rally, including iron up jumping up 6.6%, saw the Australian Dollar gain plenty of favour over Monday and Tuesday as safe-haven demand for the US Dollar dropped off.
Risk appetite was stoked as the UK expediently decided on a new Prime Minister in the form of home secretary Theresa May. The abatement of the previous political uncertainty saw investors eying up the more volatile commodity-correlated currencies such as the ‘Aussie’ and Canadian Dollar.
Further upward pressure was placed on the ‘Aussie’ as Tuesday’s NAB business confidence survey printed at double the figure it saw last month. However, the release has been marred by two Westpac consumer confidence reports showing a noticeable decline compared to the previous month.
The Pound abruptly ended its recent bullish run as a host of new economic concerns are unleashed.
British business confidence has plummeted and earlier on Wednesday UK stocks were slumping as the recent rally experienced by the Pound dropped off. Previously Sterling had been enjoying a fresh injection of investor attention initially thanks to Andrea Leadsom conceding the Tory party leadership race to Theresa May.
May’s cabinet experience and pro-Remain ties put her in good stead, in expert’s eyes, to lead the UK out of these tumultuous times. Analysts expect May to garner a trade deal with the European Union that allows the UK to trade with the single market post-Brexit.
The Pound saw further losses thanks to investment bank Credit Suisse positing that the UK will slide into a full-blown recession by 2017.
Andrew Garthwaite, Credit Suisse senior analyst, had this to say on the matter:
‘We think consensus is too optimistic on UK growth for 2017. Our European Economics team expect the UK economy to contract by 1% in 2017 against a consensus of 0.5% GDP growth… We fear that, ahead of the referendum, two of the best lead indicators for UK growth – service PMI new orders and vacancy growth – were already consistent with a mild recession.’
The main upcoming influence for the Australian Dollar Pound exchange rate will be Thursday’s Bank of England (BoE) benchmark rate announcement.
Analysts and investors are expecting at least a halving of the interest rate to 0.25%. This is bound to create drastic downward pressure on the Pound and if, as some traders expect, the central bank elects to slash rates to 0%, Sterling could face monumental declines across the board.
If on Friday the two high-impact Australian ecostats can sidestep being engulfed by the previous sessions’ BoE rate decision fallout, there is plenty of potential for ‘Aussie’ movement. The employment change and unemployment rate reports could find the Australian Dollar favour if the country can prove it is attempting to tackle its employment issues.
Other extraneous medium-importance releases are set for Friday and could serve to further reinforce the antipodean currency if the data prints well.
However, Thursday’s Bank of England presumed rate cut is still the main item for Australian Dollar Pound exchange rate movement.
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