The Australian dollar was hammered against the UK pound on Tuesday, undermined by tumbling base and bulk commodity prices and news that UK prime minister Theresa May is seeking to call a snap election on June 8.
After opening at .6035, the AUD/GBP selloff gathered intensity as the session progressed, eventually closing down 2.45% at .5888.
It was the largest one-day percentage decline since August 24, 2015, and left the AUD/GBP at the lowest level since January 4 this year.
Chris Weston, chief market strategist at IG Markets in Melbourne, said much of the move was due to the shock decision from UK prime minister to seek a snap UK election on June 8, putting a rocket under the pound.
“The market is saying that Theresa May is going to have a strong mandate by which to govern and clearly solidify her position and if the polls are correct then the Tories current majority could increase by six-fold to over Labour to 112 seats,” he wrote on Wednesday morning.
“This majority will allow swifter, potentially easier passage for legislative changes over the next two years and Theresa May will have to rely less on outlier groups in her party, or even Labour for support.”
Weston says that the election could provide May with a stronger hand when negotiating the UK exit from the European Union.
Further contributing the Aussie’s decline, base and bulk metals were hammered on Tuesday, eroding the appeal of the commodity-linked, risk-sensitive currency.
That weighed on the Aussie not only against the UK pound, but the other major crosses.
Here’s the current scoreboard as at 8.15am AEST.
AUD/USD 0.7562 , 0.0002 , 0.03%
AUD/JPY 81.96 , 0.01 , 0.01%
AUD/CNH 5.1976 , 0 , 0.00%
AUD/EUR 0.7044 , 0 , 0.00%
AUD/GBP 0.5885 , -0.0003 , -0.05%
AUD/NZD 1.0735 , 0.0004 , 0.04%
There’s little on the economic data calendar that appears likely to move the Aussie aggressively one way or another, likely ensuring that geopolitical concerns and investor sentiment will continue to drive its direction.