Markets Await Developments in US Government Shutdown, AUD Exchange Rates Bearish
The Australian Dollar Pound Sterling (AUD/GBP) exchange rate performed poorly on Monday, failing to capitalise on the current weakness of the US Dollar (USD) as markets await developments in the US government shutdown.
The US government failed to meet its deadline last Friday for reaching an agreement on a spending bill, with Democrats refusing to back the deal amid concerns regarding immigration reform.
A Senate session on Sunday also failed to result in agreement, leaving markets to wait for another vote in the afternoon on Monday.
A weak US Dollar would traditionally foster appetite for riskier currencies like the Australian Dollar and the New Zealand Dollar (NZD), but markets are also worried that a prolonged period of shutdown might have a negative effect on global economic growth.
GBP Exchange Rates Climb on Optimistic Post-Brexit Economic Outlook
Former UK Treasury Minister Lord Jim O’Neil has said that Britain’s post-Brexit outlook is actually a lot brighter than initially anticipated.
The former Minister asserted that he, and others, had been too pessimistic about the effects of the Brexit vote, claiming that robust global growth from superpowers like the US and China will, in turn, bolster the UK.
Lord O’Neil stated:
‘I certainly wouldn’t have though the UK economy would be as robust as it currently seems. That is because some parts of the country, led by the North West, are actually doing way better than people seem to realise or appreciate. As well as this crucial fact, the rest of the world is also doing way better than many people would have thought a year ago, so it makes it easier for the UK’.
This sentiment was supported today by news that the IMF has upgraded its global economic outlook, expecting tax reform in the US to stimulate economic activity, and particularly business investment, in the coming years.
The new global forecast puts growth at 3.9% for 2018 and 2019, up from the previous 3.7% in 2017 and 3.2% in 2016.
This news put the AUD/GBP exchange rate under even more pressure.
AUD/GBP Exchange Rate Forecast: Volatility Likely on US Senate Vote
The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate could become increasingly volatile in the near-term depending on the outcome of the upcoming emergency Senate vote and Tuesday’s Australian NAB business confidence reading.
The US Senate is due to vote on an emergency three weeks of funding today in a bid to reopen the government.
An extended period of shutdown could keep a lid on the upward potential of the US Dollar, potentially giving the Australian Dollar some future opportunities to climb.
A successful re-opening might help the US Dollar recover, however, and weaken the Australian Dollar in the process.