GBP/AUD Rates Retract as Fears of No-Deal Brexit Gather Pace Once Again (Matthew Vassallo)

AUD GBP Higher after Inflation Data, Sunak Budget Ahead

GBP/AUD rates have dropped by over a cent overnight, with the Pound losing support following parliaments decision to vote in favour of the Brady amendment.

Sterling hit a low of 1.8155, with investors selling off their GBP positions amid fears of what last night’s House of Commons vote could mean for Brexit.

MP’s voted in favour of an amendment to Prime Minster Theresa May’s Brexit deal by 317 votes to 301. This means that they will ultimately back a deal if the PM can negotiate changes to the much maligned Irish backstop. She has pledged to return to parliament with a deal to be voted on by February 13th, as long as the EU are willing to make the necessary concessions.

This however, is the key point and possibly why the Pound saw its value slip against the AUD since the vote was passed. The EU have made it abundantly clear that they are not prepared to renegotiate the terms of the Brexit deal, in particular removing the agreed Irish backstop.

Whether this is ultimately true, or they are playing hardball in terms of their negotiation tactics is now the question investors will be asking themselves.

Based on last night drop in value for the Pound, they are obviously not overly confident in an agreement being reached and if this ends up being the case, then a no-deal scenario once again becomes the most likely outcome.

This is seemingly what the markets fear most and are seemingly preparing themselves for this eventuality.

Looking at the AUD and it likely last night’s rise in value had far more to do with a dip in confidence for the Pound, rather than a spike in value for the AUD. The Australian economy continues to feel the pinch from a slowdown in Chinese economic growth and thus a fall in demand for Australia’s raw materials. Being Australia’s largest trade partner, any slowdown in China will inevitably have a negative knock on effect for the Australian economy and ultimately the AUD.

Add to this concerns over a slowdown in global trade, something the AUD and all commodity-based currencies fear and it is likely that the short-term trend on GBP/AUD rates will be dictated by investors’ confidence or lack of it, in the on-going Brexit negotiations.

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