Daily Archives: January 11, 2017
GBP/AUD rates have dropped dramatically recently with the pair now trading under 1.64!
The Pound has lost over five cents this week following UK Prime Minister Theresa May’s comments over the weekend regarding Brexit and if this trend continues over the coming days we could see the AUD make a move towards 1.60.
Whilst the Pound is likely to find market support above this level, it is another example of how fragile the UK economy remains in the minds of investors and how the uncertainty surrounding the UK’s exit from the EU is having such a detrimental effect on the Pound’s value.
Theresa May’s interview gave us an insight into the current thinking of the government and whilst many will argue that she is trying to strengthen her negotiating position ahead of the triggering of Article 50 in March, any indication that we are looking at a hard Brexit will only add to investors’ concerns that the UK will find itself out in the cold for years to come.
We need to consider that at present the EU are in control of all our trade agreements and we as an economy have benefited from these. The UK has no real experience of negotiating trade deals and with immigration also a key topic to consider, how will the UK economy fair for the 5-7 years it could take to put these agreements in place?
Whilst the Australian economy is not performing overly well, it has these trade deals in place already and with China a key trade partner and a generally growing economy, they can fall back on these in times of economic hardship.
The Pound did find some support yesterday following comments made by UK Chancellor Philip Hammond, who said that no decision had yet been made and that the UK could remain part of the single market but this to me is the key point, no one actually knows.
We remain in a unique position as no country has left the EU before and therefore investors are having to shoot in the dark and having to account for almost every outcome and therefore we do not have enough information to hand to make a firm decision either way.
With the Supreme Court meeting again today we could get a decision regarding the triggering of Article 50 at any time, so it would be wise for anyone with a Sterling currency requirement to keep in close contact with their personal currency broker, to ensure any opportunities that arise are not missed.
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Supreme Court Judgement to impact GBP/AUD
Last weekend Theresa May stated during a Sky news interview that she would be willing to sacrifice free trade for control over immigration. This indicates her intention to implement a hard brexit. Investors reacted and the pound fell against the Australian Dollar. The key factor on whether there will be a hard or soft brexit will be the supreme court judgement on whether parliament will get to vote on triggering article 50. If they do there is the strong possibility of a soft brexit and Sterling should rally. There could be temporary trade deals in place while new deals are struck which would take some of the uncertainty surrounding brexit away and give faith to investors.
If the ruling goes the other way, trade negotiations will be elongated and it is likely the two year target for an exit from the EU will no longer be realistic. Sir Ivan Rogers, the UK ambassador to the EU recently resigned stating an exit could take a long as ten years.
UK Manufacturing and GDP Data could effect GBP/AUD
Today we will see the release of UK manufacturing data and also UK GDP, I think we could see an increase and as a result a small movement in Sterling favour against the Australian Dollar.
Australian Economic Outlook
Despite the potential for pound weakness short term, I feel Sterling could gain strength medium-long term against the Aussie. Once some of the uncertainty surrounding brexit is removed the pound should start to recover. Down under however, economic data has been poor and there are fears Australia could lose it’s AAA credit rating. With investors moving funds out of the Australian Dollar and moving to the safer haven of the US dollar. Higher returns are now promised State side with further interest rate hikes expected following the recent hike in December. It would be wise to keep an eye on Chinese data if you have a trade involving Australian Dollar. Australia are heavily reliant on the Chinese purchasing their raw materials. If Chinese growth dwindles expect Australian Dollar weakness.
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