Volatility expected on GBP/AUD (Daniel Johnson)
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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