GBP/AUD rates have dropped below 1.70, with the AUD making inroads despite some positive Manufacturing & Construction data for Sterling this week.
The Pound has found a lot of resistance around the current levels and despite a move through the 1.70 threshold, it has retracted quickly and once again proves how fragile the UK economy remains in the minds of investors.
The Pound has recovered slightly over the past 24 hours but I would be wary about assuming that we will see an aggressive move up for sterling under current market conditions. We need to consider that the on-going Brexit scenario is likely to drive the markets and in particular Sterling’s value, for months if not years to come.
This will make any sustainable Sterling improvement hard to come by and for this reason I would not be prepared to sit back and gamble on where the Pound may be sitting after March, when Article 50 is finally triggered.
UK Prime Minister Theresa May has given little away in terms of how we will facilitate our exit from the EU and this means the market are having to second guess, whilst trying to prepare for almost any eventuality. This uncertainty is hardly likely to breed confidence in the UK economy and as a result Sterling’s value is likely to be restricted.
However, this does not mean that those clients holding AUD should assume that GBP/AUD rates will plummet, as much of this negative feeling has been factored into the current exchange rates. The Australian economy is facing problems of its own and with a downturn in economic data and growth forecasts for this year and 2018 being squeezed, there is, in my opinion too much uncertainty to gamble on a move back towards 1.60.
We also need to consider the fact that the AUD is a commodity based currency and as such, is heavily reliant on the global economy performing well. Any downturns can have severe consequences on the currency in question, which is one of the reasons we see bigger swings on GBP/AUD than we would against some of the other major currencies.
Looking ahead and we have Services data out for the UK tomorrow, which could have an impact on the rates depending on whether the figure released is outside of the expected remit. There is also Trade balance figures and Import/Export data released on Friday in Australia, so expect further movement on GBP/AUD rates before the week is out.
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