The pound to Australian dollar exchange rate has fallen lower with rates sitting at 1.8780 for the GBP vs AUD pair. The downward movement in the Australian dollar forecast is down to due to two main reasons. On the one hand the Brexit negotiations have just ramped up a notch in these last two weeks. Brexit has barely been in the news since the onslaught of Coronavirus outside of China but focus is now looking to the next EU summit at the end of June and whether a Brexit deal can be reached. There has been some speculation that the British government may need to extend the transition period to allow more time for a del to be reached.
The current trajectory suggests that the Britain will look to trade on World Trade Organisation (WTO) rules at the end of the transition period, which concludes at the end of 2020. If a trade deal is not reached, then the government is basing such a WTO Brexit on an Australian model. In a sign of how discussions could become fraught in these crucial weeks ahead Britain’s chief negotiator David frost has told government that the EU are “absolutely clear that we will not extend.” Even the EU’s chief negotiator Michel Barnier has said that there is risk of a stalemate.
The Sunday Times has reported that an EU official said there was “no political electricity” around the talks and that “both sides will go to no-deal planning”. There may be some hope for sterling however if there is prospect for a deal. The Sunday Tines reports that EU officials insist a deal must be reached by October for it to be ratified in time. UK Prime Minister Boris Johnson also expects there to be a deal.
Those looking to buy or sell Australian dollars in the weeks to come ahead of that crucial EU summit should pay close attention to all the latest developments. The AUD to GBP forecast could change as Brexit remains one of the single biggest drivers for sterling exchange rates as it has been for nearly four years since the June 2016 referendum.
Australian Dollar Forecast Better with Increased Confidence in Global Economy
The other reason for the strength in the Australian dollar is that this commodity currency generally performs best when the global economic outlook is brighter. As economies and businesses have started to come back online in the last couple of weeks with lockdown measures eased, there is an expectation that things can get better, even though a new normal will need to be found. Whilst so much uncertainty remains over COVID-19, the markets clearly feel more comfortable with the state of affairs than two months ago and this is demonstrating itself with a stronger Australian dollar.
In Australia bars and pubs are starting to reopen taking early steps having been closed for seven weeks when the pandemic took hold. As we are seeing in other countries new rules are being tested for business to re-open under different trading conditions. In the case of the Australian pub a phased reopening is expected with businesses expected to test innovations, no doubt using technology and smart phones. In a sign of some confidence returning down under Michael Gunner, chief minister of the Northern Territory said “the beers are here and the jobs are back.” Any improvement in economic outlook and can only be a good thing for the Australian dollar having been battered in the last couple of months.
Economic data is light down under this week although the Reserve Bank of Australia (RBA) minutes from the last meeting in May could give some indication as to are the Central Bank sees the economy heading. The RBA cut interest rates sharply at the March meeting in response to COVID-19. Whether there is market much market reaction remains to be seen with an expectation the economic outlook will be bleak for the first half of this year.
RBA Governor Philip Lowe will be making a speech this Thursday which could see a shift for GBPAUD if any clues are offered in how the Central Bank forecasts output in these new times. Whether the RBA is prepared to cut interest rates further below already record lows and whether it feels it would make any material difference is not yet clear which makes this speech a very important one to note.
Australian unemployment data rose to 6.2% as Coronavirus has resulted in 600,000 lost jobs. Unemployment rose from 5.2% to 6.2% in a single month and the Australian Prime Minister Scott Morrison has warned more will follow. How the UK and Australian economies respond to COVID-19 from here on and the speed at which they bounce back will inevitably determine the future path for the pound vs dollar exchange rate.
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