Over the past month the Australian Dollar forecast has consistently improved against the pound, rising by as much as 5% since the beginning of May. This week however, AUD rates have started to show some fragility and there have been some volatile peaks and troughs in AUD value.
The strength of the Australian economy, and therefore the Australian Dollar is heavily reliant on their exports and relationship with their largest trade partner, China. In recent times though, this relationship has become strained, starting with Australia’s call for an enquiry into China’s initial role in the spread of the virus and measures they could have implemented to control the spread. These tensions have continued to escalate, with China retaliating by imposing tariffs on Australian exports such as beef and barley. AUD rates have suffered this week as the retaliatory stance from China seems to have been ramped up a notch with rumors that tariffs on Australian coal could be introduced.
AUD Could Fall if China Imposes Tariffs on Australian Coal
In a report this week from FX strategist at ING Bank, Francesco Pesole, he stated, “Reports that China is considering limiting Australian coal imports – as diplomatic tensions between the two countries rise – doesn’t bode well for AUD. If such speculation materialises, the fall for the currency may be quite significant”. China is the second largest buyer of Australian coal behind Japan, and with the Australian economy heavily reliant on its exports, especially in the current climate, the impact could be significant. No official tariffs have been imposed yet, but the rate has already been impacted on rumour.
In addition, Australia along with the US, UK and Canada have criticised China over the law they are threatening to impose over Hong Kong that would risk the freedoms of the region. In response to China’s actions a joint statement from the US, UK, Australia and Canada read, “We are also extremely concerned that this action will exacerbate the existing deep divisions in Hong Kong society.” Keep in touch with your account manager here to stay up to speed with the latest on how this story is affected AUD exchange rates.
Australian PM to Focus on Bringing Down Unemployment
In the wake of the Coronavirus pandemic and lockdown that hit Australia, the jobs market suffered significantly, and unemployment rose to almost 10% as a result. Speaking in the early hours of this morning, Australian PM Scott Morrison has promised that Australia’s ‘war cabinet’ will meet once a month in a bid to bring down the unemployment level.
This move comes after reports from New South Wales that the Coronavirus could end up costing the economy as much as A$20 billion in lost revenue over the course of the next 4 years, whilst the RBA reported concerns that they believed the economy could shrink by 10% in the first half of 2020. Although these headlines are negative, if Morrison’s focus on jobs can have a positive impact on the unemployment rate then this could boost economic output in the near term and therefore bolster AUD value.
Fears of No-deal Brexit Weaken Sterling
Another factor that contributed to volatile trading conditions yesterday on AUDGBP exchange rates came from reports that Brexit talks between EU and UK negotiators have hit a stalemate and fears of a no-deal Brexit are rising. As we have seen historically, when a no-deal Brexit looks more likely, the Pound’s value suffers, and we could therefore see the Pound continue to weaken if these fears intensify.
The main stumbling block is currently over fisheries and the EU believe the UK are trying to ‘cherry-pick’ the benefits of being in the bloc, which they do not feel is possible under a free trade agreement. Talks a due to recommence next week and throughout June and this is a topic that is likely to create large swings in Sterling value.
If you have an upcoming requirement for buying or selling Australian dollars, there are a raft of data releases due next week that could have a substantial impact on your transfer costs. On Tuesday the Reserve Bank of Australia will release their latest interest rate decision and monetary policy statement which will give a strong indication of how the economy is currently faring. Later in the week there are Gross Domestic Product figures and retails sales numbers, and it will be interesting to see whether they mirror the RBA’s fears of how badly the current climate has affected these. These releases will be in the early hours of the morning, get in touch with us in advance to ensure you have all the information on the tools we can offer to help minimize your risk to adverse market movements outside of our usual trading hours.