May causes volatility on GBP/AUD
Theresa May spoke yesterday in took some of the uncertainty away from the markets buy outlining her intentions in regards to a UK exit from the EU.
She stated the UK can not remain in the single market as this would mean not leaving the EU at all. She did also announce that any agreement with the European Union would allow the freest possible trade in goods and services.” Investor confidence was returned and GBP/AUD currently sits in the 1.63.
EU leaders have stated the freedom of goods, services and workers is not realistic if there is restrictions on the free movement of people within the EU.
Personally, I think this is a very positive move for the UK, giving some clarity brexit. But it is important to realise it may not all be rosy from this point. I feel trade negotiation targets need to be extended from the current target of two years. Sir Ivan Rogers, UK ambassador to the EU recently resigned over the unrealistic time scale for exit and insufficient planning. Rogers thinks trade negotiations could take as long as ten years.
The US have been very forthcoming about getting a trade deal in place which should bring more confidence to investors, however it is important to look at the history of the US in previous trade negotiations. The quickest of which took four years.
US Interest Rate Levels could cause investors to leave the Australian Dollar
In December the Federal Reserve rose US interest rates and forward guidance has indicated there could be as many three more during 2017. Although forward guidance can be taken with a pinch of salt, this years guidance does bare more credence. Data from the US has been very positive and it seems Yellen will find it difficult to keeping rates on hold. It will be the popular destination for investors with higher return than previously and also a higher level of safety than the Australian Dollar. Employment figures have been dwindling down under and there has been large falls of employment in the mining sector. There are also rumours circulating Australia could lose its AAA credit rating which means the Aussie could be in for a rough year.
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