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- Conservative majority to aid GBP/AUD gains

- Fears of RBA quantitative easing to weigh on AUD

- But U.S.-China trade deal could boost AUD in 2020

The Australian Dollar is being forecast to fall against the British Pound in the event of the Conservative Party winning the December 12 General Election outright.

NAB - which is one of Australia's largest high-street lenders - says the near-term GBP outlook is binary, depending on the outcome of December 12th General Election.

"Outright Conservative majority is seen as GBP positive, and the single most likely outcome according to opinion polls and bookmakers," says Ray Attrill, Head of FX Strategy at NAB in a note to clients.

According to Attrill, a hung parliament would be short term negative (31% probability) via prolonged Brexit uncertainty and/or fear of Labour leader Corbyn becoming PM.

"An outright Tory majority should mean quick passage of the Withdrawal Agreement Bill by Jan 31st, followed by a transition period ending Dec 2020 but with the option of an extension for up to two years by mutual agreement, to be determined by June 30th 2020 if no post-2020 trade arrangement agreed by then," says Attrill.

NAB forecast the GBP/USD exchange rate to trade in the region of 1.33-1.36 in the above outcome.

The Pound-to-Australian Dollar exchange rate is meanwhile forecast to trade around 2.00.

"Further gains then dependent on clarity (or otherwise) vis-a-via a future UK-EU free trade agreement," says Attrill.

GBP/AUD is currently seen at 1.8949, with the exchange rate seen consolidating in a sideways pattern above 1.89, but below resistance at 1.9080; a break of this ceiling level will be required to prompt sizeable upside gains towards the 2.0 ceiling cited by NAB.

RBA Seen Pressuring AUD in 2020

The Australian Dollar is meanwhile seen exposed to potential quantitative easing at the hands of the Reserve Bank of Australia (RBA) in 2020, after RBA Governor Philip Lowe told an audience this week that unconventional monetary policy is a tool that can at some point in the future be deployed to boost the Aussie economy.

Quantitative easing is essentially the printing of money for the purpose of buying government bonds, this creates an injection of money into the economy that is intended to boost inflation and employment.

Lowe told the Annual Australian Business Economists Dinner in Sydney the RBA will cut interest rates further before considering unconventional policies such as quantitative easing. Either way, the cutting of interest rates and printing of money by a central bank tend to lead to a decline in value of the currency issued by that central bank.

The RBA therefore looks to be a potential weight on the Aussie Dollar over coming months unless the Australian economy picks up a head of steam.

"In the absence of meaningful fiscal stimulus, the RBA is likely to go down the road of unconventional policy in 2020, in which case a weak AUD would be actively desired as part of the ‘transmission mechanism’ from QE to the economy," says Attrill.

The RBA will keep an eye on developments in the Chinese economy, as an improvement in performance here will likely boost Australian exports.

Much will depend on the outcome of current trade negotiations between China and the U.S., which are expected to reach a 'phase 1' deal in either late 2019 or early 2020.

The securing of a deal, and any subsequent pick-up in global trade will likely boost the Australian economy, and lead to a rebound in the value of the country's currency and put a lid on GBP/AUD's advance towards 2.0.

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