UPDATE: Tuesday's session saw the Pound to Australian Dollar (GBP/AUD) exchange rate fluctuate around the day's opening levels, with the cross priced -0.05% lower at 1.85038.
Monday's session saw the best GBP/AUD conversion of 2018, around the 1.86 level.
GBP/AUD extended its decline (-0.56 percent) on Monday morning, with £1 buying just AU$ 1.85019. This decline in sterling was reflected across the FX board with the pound trading lower against a basket of global currencies.
Leading analysts at Maybank noted that The AUD remains under pressure and the rise in global yields also weakens the demands for the Australian bonds. That said, the 10y yield spread between the Australian government bonds and UST remained near its widest since it had tumbled into discount in Feb this year, last seen at 46bps. RBA’s monetary policy divergence vis-à-vis the rest of the DM, especially the most aggressively tightening Fed could continue to keep AUD on the backfoot."
GBP/AUD roared higher last week, rising around 4 cents and striking its best levels since the EU referendum as the ‘Aussie’ came under heavy selling pressure this week.
The Australian Dollar (AUD) was met by heavy losses this week, plummeting against the Pound (GBP) and the majority of its other peers as it was hit by a slump in market risk appetite.
These losses did not materialise immediately however, with the ‘Aussie’ appearing resilient at the start of the week due thin-trading volumes as domestic markets closed for the Labour Day celebrations and the Reserve Bank of Australia’s (RBA) decision to maintain in neutral bias following its latest policy meeting.
Things began to sour for the ‘Aussie’ overnight on Tuesday however, with the currency getting caught up in a broad sell-off of risk-sensitive assets, with concerns over Italy’s budget and debt pile spooked investors.
These losses accelerated through Wednesday’s session amid a jump in the US Dollar (USD), with demand for the ‘Greenback’ soaring as markets flocked to the currency following a surge in US bond yields.
The downwards momentum carried through to the second half of the week’s session as well, with markets shrugging off a stronger-than-expected rebound in domestic retail sales as higher US treasury yields as well as losses across the commodity market sent the Australian Dollar spiralling lower.
Meanwhile the Pound’s (GBP) advance against the Australian Dollar (AUD) this week was supported by renewed Brexit optimism.
However this was largely focused in the latter half of the week, with Sterling largely stalling at the start of the week’s session as the UK’s latest PMI figures failed to impresses GBP investors.
After drifting higher in the middle of the week, mainly on the back of weakness in the Australian Dollar, the GBP/AUD exchange rate accelerated its advance on Thursday following reports Ireland would back Theresa May’s Brexit plans for an all-UK customs union with the EU.
This led to a marked upswing in Sterling sentiment, allowing the Pound to close out the week’s session on a high note as it bolstered optimism that this could help to resolve the Irish border issue, something which has proved to be a major roadblock in the UK attempting to finalise a Brexit agreement with the EU.
Looking ahead, a lull in notable data means Brexit is likely to remain the dominate force in the the Pound Australian Dollar (GBP/AUD) exchange rate next week, especially as we rapidly approach the EU summit of leaders later this month.
This may prompt some notable volatility in Sterling throughout the session depending on whether it appears likely the UK could finalise a Brexit agreement with the EU.
Meanwhile analysts are warning that there may be further losses in store for the Australian Dollar in the immediate future as markets brace for further trade tensions between the US and China.
Whether these losses will materialise in the coming week remains to be seen however.