The Pound has seen its value steadily rise against the AUD over the course of the trading week, moving back above 1.87 at the high overnight.
Whilst the AUD has found some support today around the current levels, the long-term outlook for the Australian economy remains dovish to say the least. Westpac, one of Australia’s largest banks has predicted further interest rate cuts by the Reserve Bank of Australia (RBA) this year.
With interest rates already set at record lows of 1.5%, any further decreases are likely to add to the growing sense that the Australian economy is set for a period of stagnation.
Add to this the prospect of Brexit talks finally moving yielding some kind of positive outcome, and it’s conceivable to imagine the Pound making further inroads back above 1.90.
Whilst the current outlook may seem more favourable for Sterling, the current optimism is based on Brexit talks actually yielding a positive outcome ahead of the second “meaningful” vote. This is scheduled to take place by March 12th and it will give UK MP’s the chance to vote on any amendments to UK PM Theresa May’s original Brexit withdrawal agreement with the EU.
Should the PM manage to negotiate any amendments, they would almost certainly have to include some type of concessions from the EU regarding the current Irish backstop arrangement. Many of the MP’s who voted against the PM’s initial deal in the House of Commons have stated that this is the key issue that needs to be resolved. Therefore any softening the EU’s stance on this contentious issue, could bring it with renewed optimism that a deal can be reached by the current deadline of March 29th.
Needless to say any failure on her part to do so, will likely end the chances of a deal being agreed by the end of March and a different approach will have to be adopted. The EU would then have to grant an extension to the current deadline in order to help facilitate further talks, which will hopefully then lead to a positive outcome.
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