Potential RBA Rate Hike
The majority of data releases from Australia have been very positive of late and it is proving difficult for the pound to gain any significant ground, in fact as I write GBP/AUD only sits just above 1.62. Despite rumours of a potential interest hike I would be surprised to see the Reserve Bank of Australia (RBA) make any alterations to the rate.
Australia is heavily reliant on China buying it’s raw materials. The Australian dollar is already proving expensive, it would not be wise to jeopardise trade with one of the largest economy’s in the world. If the price of raw materials became too expensive there are many other countries ready to fill Australia’s boots.
The Brexit bill is currently in possession of The House of Lords after getting approval from the House of Commons. It has now reached the stage where the House of Lords will put forward any potential changes to the bill. Theresa May purposefully made the bill extremely brief in an attempt to avoid any significant changes. It is her wish to get the bill passed through quickly and efficiently for her own hard Brexit agenda.
It would be surprising to see any major changes as there would be public out cry if the triggering of article 50 was delayed due to any amendments made by the House of Lords. There is one area that needs to be clarified, the situation on the rights of current EU citizens residing in the UK post Brexit. If an amendment is made, the bill will have to be returned to the House of Commons for approval. We could see a potential ping-pong situation which would be no help for the pound if it occurs.
Personally, I feel the pound is undervalued against the Aussie. In September 2015, GBP/AUD was above 2.20, before the announcement of a referendum. The next few months will be extremely difficult to predict due to the Brexit situation, however once Article 50 is invoked I would expect Sterling to rally once trade negotiations become more apparent.
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