Pound Australian Dollar (GBP/AUD) Exchange Rate Stumbles as MPs Assess Brexit Deal
As markets began to brace in earnest for Saturday’s parliamentary vote on Brexit the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate struggled to recover its earlier momentum.
Even after the major breakthrough officials made this week, potentially resolving the Irish border issue, it remains to be seen whether enough MPs will accept the proposed deal.
As a result, growing doubts over Boris Johnson’s ability to push the agreement through parliament left Pound Sterling (GBP) on a weaker footing on Friday.
Commenting on the complex parliamentary arithmetic that lies ahead, ANZ’s Brian Martin noted:
‘Many MPs welcome a deal but feel its implications need to be put to the public in a referendum. The DUP, which has supported the government, says that under no circumstances will it support the deal.
‘The government needs 320 votes to pass the agreement. Johnson’s Conservative Party has 287 MPs.’
Unless investors see a solid chance of the deal passing on Saturday the GBP/AUD exchange rate could face renewed downside pressure.
Weaker Chinese Growth Fails to Dent Australian Dollar (AUD) Demand
Although the third quarter Chinese gross domestic product fell short of forecasts on Friday, dipping from 6.2% to 6.0%, this failed to weigh down the Australian Dollar (AUD).
Investors instead took encouragement from the unexpectedly solid nature of the accompanying industrial production data, which showed growth of 5.8% on the year.
This suggests that the world’s second-largest economy is still holding up in spite of ongoing trade tensions with the US, encouraging a greater sense of market risk appetite.
Hopes of fresh progress towards a full trade deal between the US and China also helped to fuel demand for the risk-sensitive Australian Dollar ahead of the weekend.
However, if relations between the two nations show any fresh signs of souring in the days ahead this could put a dampener on AUD exchange rates.
Fresh GBP Exchange Rate Volatility Forecast in Wake of MPs’ Brexit Decision
The outcome of Saturday’s parliamentary vote is likely to dominate the direction of the GBP/AUD exchange rate heading into next week.
A fresh bout of uncertainty over Brexit could see the Pound fall sharply out of favour, moving further away from its recent highs as worries over a potential no-deal scenario increase.
On the other hand, if MPs approve the deal GBP exchange rates are likely to maintain a bullish bias in the near term.
Even so, the latest CBI industrial trends orders and business optimism index readings could still put pressure on the Pound on Tuesday.
Further signs of weakening confidence among UK businesses may put a dampener on the GBP/AUD exchange rate, even in the face of a Brexit agreement.
With the UK economy having already lost momentum over the course of the year any fresh decline in sentiment could raise the odds of a further contraction in growth, denting the appeal of the Pound.