Since December the Pound has been losing value against the Australian Dollar. Sterling reached its highest level against the Aussie yesterday since the 2016 referendum. This was following the news that a Brexit no deal had been taken off the table until 29th March combined with the news that MPs have now voted to extend Article 50 in order to come up with a mutually acceptable deal between the UK and the EU.
The Australian economy is currently experiencing problems which is proving to be another catalyst for the rise in GBP/AUD. Consumer confidence, business confidence and housing loans data all showed a decline. Australia’s heavy reliance on China purchasing it’s goods and services is hurting the Aussie as Chinese growth, although still impressive has slowed quite considerably since the US/China trade war commenced. It was announced yesterday that China’s industrial output fell to its lowest level in 17 years during the first two months of 2019, unemployment has also been on the rise. There is the potential that Chinese President, Xi JinPing and US President, Donald Trump could come to an agreement at the end of the month and cease tariffs which could boost investor confidence and in turn strengthen AUD.
Will the RBA minutes give an insight into future Monetary Policy?
Although Brexit will continue to be the key driver on GBP/AUD there are plenty of other factors that can have an impact on the currency pair. On Tuesday morning, during the early hours the Reserve Bank of Australia (RBA) will release minutes following the recent interest rate decision where rates were kept on hold at 1.5%. The RBA have already hinted at potential rate cuts and if this is mentioned again we can expect further Australian Dollar weakness.
Next Thursday has the potential to cause market movement with the release of RBA Bulletin and unemployment figures for February. If the data arrives away from expectation expect volatility.
Personally, I think the Aussie could be in for a tough time due to the increasing problems surrounding the economy, I haven’t even touch on the housing price bubble. If it is announced there is a deal on the Irish Border I would expect significant Sterling strength. I feel Pound is currently chronically undervalued. If I was sitting on Aussies I would not be hanging around for improvements considering risk versus reward.
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