The AUDGBP exchange rate continues its incline with a big increase this morning taking rates for the AUDGBP pair to a high of 0.5450. The Australian Dollar Forecast for AUDGBP exchange rates look set to be driven by Brexit talks this week.
The Australian dollar has been boosted as economies around the globe have intervened with their own measures which has provided a slightly better outlook globally following the onset of Coronavirus. Australia has not been impacted as badly as other economies around the globe, and it is true that the economy is coming back online swiftly. Last week some pubs were able to open under new COVID-19 guidelines including social distancing measures. Cricket will also resume in Australia having been brough to a halt after COVID-19 appeared. Live matches are expected to be shown from Darwin via live stream and it highlights a shift in easing lockdown measures following a successful control of the disease down under. If the Australian economy can bounce back quickly and avoid a second attack of the pandemic this should bode well for the Australian dollar going forward. The situation is very different in the UK which is still facing fairly strict lockdown measures. Reports are stating that it is still too early to lift measures and the fear is that there may be a second wave of infections later on in the year. The number of new infections in the UK is still running at about 8,000 per day. Any new statements this week could see further volatility for the GBP to AUD pairing.
Trade Tensions with China
Meanwhile the situation in China is likely to have further impact on the Australian dollar on many levels. The protests in Hong Kong have now resulted in China trying to force changes to the law which already is having knock on effects politically. The US is embroiled in a trade war with China and although Phase 1 of a trade agreement has been agreed nothing is certain in these unusual times. The Huawei deal also continues to be a sticking point between the US and China, but now also the UK and China. The UK had agreed to allow Huawei access to the UK’s 5g infrastructure but the mood from Downing Street has shifted dramatically over what China seeks to do about Hong Kong. UK Prime Minister Boris Johnson is reportedly taking a different view of things now and the foreign secretary Dominic Raab hinted last week that the deal was no longer on, with the phase out of Huawei entirely within the next few years. More importantly the UK has offered a lifeline to Hong Kong’s residents (almost 3 million) that they can apply for visas to the UK which could lead to permanent residency in the future. This is a politically explosive development, and move of talent and business leaving Hong Kong for the UK could have negative consequences for China. Expect more volatility from this story as tensions continues to escalate in Hong Kong. This is important for the Australian dollar as its success depends on the health of the Chinese, and global, economy. Any further political escalations could damage that economic recovery in these times when economies have been hit hard by COVID-19.
Those specifically with an AUD to GBP conversion to make should pay close attention to crucial Brexit discussions this week, which commence between the UK and the EU today. The tone over the weekend has been less optimistic with Michel Barnier saying “The UK has been taking a step back – two steps back, three steps back – from the original commitments.” Discussions continue surrounding the more controversial issue of a level playing field on environmental, social and labour standards and the hot pot potato of the fishing industry amongst others. As history has shown us over these last four years the pound tends to respond very negatively on the prospect of a no deal Brexit. The UK government has said that if the UK does not reach a free trade agreement with the EU then it would revert to World Trade Organisation rules and steer towards an Australian style Brexit (code for no deal).
Those looking to buy Australian dollars with pounds who are hoping for an extension to the transition period which ends 31st December 2020 may be disappointed. The UK’s chief negotiator has that it is ‘firm policy’ not to extend the transition period.
To discuss options available to reduce exposure to the currency markets please feel free to make contact as these next two weeks will be crucial for sterling exchange rates ahead of an important EU summit to be held 16th June. Get in touch using the form below.