The Pound Sterling Australian Dollar (GBP/AUD) exchange rate was left muted today, as MPs began preparations for a pre-Christmas election, leaving the pairing trading around AU$1.8795.
Sterling was supported this week on increased hopes the UK will avoid crashing out of the European Union without a deal thanks to a three-month ‘flextension’ granted by EU leaders.
Prime Minister Boris Johnson has said the election will break the current Brexit deadlock that has plagued parliament, preventing the UK from leaving the bloc.
However, the pairing was left muted as markets assessed the risks of the December election.
Many believe the Conservatives will be able to hold onto power, and commenting on this, head of global research at MUFG, Derek Halpenny said:
‘Johnson has cross-party support and [the opposition] Labour Party has lost a fair lot of the credibility it had in the 2017 election.
‘So that’s reflected in the stability in Sterling – markets believe the Conservative party will hold on to power and have a Brexit deal agreed with the EU.’
Meanwhile, the Australian Dollar was left muted as Aussie inflation continued to undershoot the Reserve Bank of Australia’s (RBA) target.
However, headline inflation edged up slightly from the previous month in September and inflation in the three months to September was slightly higher than expectations.
CBA economist, Kristina Clifton argued there were some tentative signs low inflation could be bottoming out and stated:
‘The percentage of the CPI [consumer price index] basket rising at less than 2% has dropped to its lowest level since [early] 2015, while underlying inflation annualised over the past six months has lifted a little too.
‘Fifteen quarters of misses is starting to feel like a long time, and it's likely to be several more years until inflation picks up to target.
‘Given the three cash rate cuts since June, we think that the RBA will want to take some time to assess the impacts of lower interest rates before deciding on their whether to cut again.’
This, along with a decrease in the unemployment rate likely eased pressure on the RBA to slash rates in its upcoming monetary policy meeting.
Looking ahead, it is likely the ‘Aussie’ will slide against the Pound following the release of September’s HIA new home sales.
If sales slump further than expected, it could leave the Australian Dollar under pressure.
However, the pairing is likely to be left muted as October’s GfK UK consumer confidence is also due for release.
Sterling sentiment could slump if consumer confidence reveals consumers grew increasingly pessimistic and cautious ahead of the 31 October Brexit deadline.