Those clients holding Sterling will have been pleased with the improvements they’ve seen over the past 10 days, with the Pound gaining almost seven cents from the low.
GBP/AUD rates are now trading around 1.67, providing clients with an AUD currency requirement some much needed respite.
This improvement has come in line with UK Prime Minister Theresa May’s Brexit speech last week and a far more softened tone regarding future relations with the EU, following the supposed triggering of Article 50 in March.
We have also had this week’s decision by the Supreme Court, which backed the High Court’s ruling. It means Article 50 must be ratified by MP’s before any official process to leave the EU can begin. This was priced in by investors ahead of time and was likely a big part of the reason that we have seen aggressive Sterling strength, as it likely means a softer Brexit than many first anticipated.
Personally, I think the markets were crying out for some solid information after basing their decisions on rumours and guess work and whilst I don’t expect the current Sterling strength to continue at the same pace, it may be wise to protect any AUD positions.
The AUD is still trading at some of the best levels of the past five years and is, in my opinion, over-valued against the Pound. The AUD has gained a huge amount of value over the past six months but this has as much to do with the complete lack of investor confidence in the UK economy, rather than an overriding one in the Australian.
The AUD has been the benefactor of this but the Reserve Bank of Australia (RBA) are unlikely to be pleased with such a strong dollar, as it will have a detrimental effect on their export industry. China is facing huge tax tariffs from the US following Trumps Presidential appointment and any slowdown in the Chinese economy, Australia’s largest trading partner, is likely to have a negative effect on the AUD.
As regular readers will know this is such a key component of their economy that any slowdown in this sector will hit them hard, as we witnessed following the unprecedented levels on GBP/AUD around 2010 (1.40).
We also had some better than expected Gross Domestic Product (GDP) figures for the UK this morning and again this is likely to increase confidence in the UK economy and the Pound could be boosted as a result.
This leads me to the conclusion that the downside risk for those clients holding AUD outweighs the upside gains and as such I would be tempted to lock in any short to medium-term AUD/GBP currency transfers and remove any risk from this unpredictable and fragile market.
If you have an upcoming currency transfer to make and are concerned about the current market instability, or simply wish to compare our award winning exchange rates with your current provider, then please feel free to contact us on 0044 1494 725 353 and ask one of the team for Matt.
Alternatively, I can be emailed directly on [email protected] and can answer any queries you have about the current market trends & forecasts.