Since countries all over the world started to go into lockdown the Australian dollar has been making steady inroads against the pound. Exchange rates have improved from the low of 0.4882 that we saw at the beginning of April to 0.5408 at the time of writing this article.
Australian Dollar Benefits Due to an Improvement in the Global Economy
The Australian dollar is seen as a risk based currency, and now that the global economy is starting to tick over, commodity prices are on the rise and equity markets are rebounding, the Australian dollar continues to march on ahead, not just against the pound but also the US dollar. In addition, the link between China and Australia is important. China has come out of its lockdown and their economy is improving which is good news for the 2nd largest economy but also the Australian as China is Australia major trading partner. However a trading debate has started between Australia and China and if tariffs are on the horizon, this could cause a problem for the Aussie.
Why Has the Pound Dropped in Value Against the Australian Dollar?
This weekend all of the spotlight has been on the UK Prime Ministers chief advisor Dominic Cummings. For clients that are not following uk media, Mr Cummings drove hundreds of miles to his family home in Durham to self-isolate due to childcare issues. The country is divided and believe that he should lose his job due to breaking the isolation rules, but the other half believe he had no alternative and according to government guidance he has the right to travel. However, at present the Cummings scandal appears to be having an impact on the PMs approval rating, but not sterling.
The reason why the pound has dropped against the Australian dollar is for a few reasons. UK economic data in recent weeks has been poor. Unemployment is on the rise, average earnings, Retail sales, manufacturing/industrial production and inflation are all on the decline. You could argue these figures were to be expected as the country is in lockdown. However, as Australia has not been hit as hard as the UK, that’s the reason why the Australian dollar has marched on against sterling.
Also, the ongoing Brexit debate is putting strain on sterling. Chief Brexit negotiator Michel Barnier in recent weeks has stated that the UK are not prepared to negotiate and that is the reason the UK could end up crashing out of the EU at the end of the year without a deal. However reports only this morning are suggesting that a key hurdle that needs to be overcome is fishing rights and the EU could back down on this next week when the negotiations start once more.
What to Look Out for in the Weeks to Come?
The month of June is extremely important for AUDGBP due to events that may unfold in the UK. Next week UK and EU negotiators will continue to try and thrash out a trade deal. In the middle of the month the EU will hold their EU summit and Brexit will be a hot topic and then at the end of the month, that’s the dealing for the UK if they plan to seek an extension. The closer we get to the end of the month without either, positive news from the negotiations or an extension, this could cause further problems for the pound and AUDGBP could continue to rise. For clients that are selling AUDGBP good times could continue in the weeks to come, however clients that are buying Australian dollars an uncertain lies ahead.
To discuss these factors and their potential impact on an upcoming xurrency exchnage involving AUstralian dollars, get in touch using the form below.