AUDGBP: Australian GDP Disappoints, AUD Weakness

Could this Key Week for Brexit Negotiations Impact AUDGBP?

The AUDGBP rate is trending higher this morning, with the pair climbing above 1.82 at the highest level so far. Since breaking above the 1.80 handle at the end of July the pair have found support and traded within a thin range ever since after beginning the year in a very volatile fashion.

This morning’s market movement can be attributed to a slowdown in the Australian economy, with the country hitting the financial headlines after falling into recession for the first time in nearly 30-years. The recession has of course been brought about by the lockdown measures implemented as a result of the Coronavirus, and therefore the market reaction has been relatively subdued as most countries are facing a similar situation. As it is Australia’s first recession in almost 30-years though, the news is likely to be in the financial headlines which could impact sentiment towards the country moving forward.

Gross Domestic Product (GDP) figures, which essentially measure economic output shrank by 7% between April-June compared to the previous quarter. During the January-March period there was a fall of 0.3% so two consecutive quarters of falling economic output confirm that a recession is taking place. This news is significant because during the previous global economic slowdown 12-years ago Australia managed to avoid falling into an official recession, which is why the nation has had such a long-term continuous period of growth.

Chinese Trade Tariffs Likely Impact Australia’s Economy

Australia has benefited from a close trading relationship with China in recent years, so the trade war talks between the US and China could impact the Aussie dollar’s value moving forward as talks of Chinese tariffs have concerned areas of the Australian economy. The nation has also benefitted from increased tourism, but this industry is currently under immense pressure due to the reduction in air traffic and the free movement of people, so this is another concern for the Australian economy moving forward.

The news out of Australia this morning has not come as a shock as a drop was expected, although the drop was by more than expected according to financial analysts. The drop isn’t as bad as other developed nations though so we should put the data into perspective. The US, which is the world’s leading economy fell by 9.5% during the April-June quarter, and the UK’s fell by over 20% owing to the high reliance on the services sector within the UK. This could bode well for the Aussie dollar’s moving forward as the downturn maybe short lived compared to other nations.

Whilst the AUDGBP exchange rate has traded within thin ranges for the past couple of months, the Pound has perform very well against other major currency pairs which shows that Aussie strength may have curtailed the Pounds strong performance regarding AUDGBP.

The Pound to Euro exchange rate is trading around a 10-week high and cable (Pound to US dollar) is trading at a 9-month high. These markets movements have come as a surprise to some considering that next month could be very important for the UK moving forward. With the UK scheduled to leave the current EU transitional deal at the end of the year, both UK and EU negotiators have outlined preferences for the deals to be agreed upon by October. There will be an EU Summit in the middle of October and following that there will be enough time to have the new laws and regulations written into legislation by the new year when the UK will be out of the EU entirely.

The markets appear quite relaxed regarding this matter, which suggests to me a deal is expected. Those of our readers with plans to exchange Pounds should be aware of this as so far this year we have seen some significant trading ranges for the Pound which has been brought about by coronavirus and Brexit related updates.

Later today the governor of the Bank of England (BoE) will be speaking, Andrew Bailey. The message from the BoE at the moment is that there are more tools in their arsenal if needed to assist the UK economy in its recovery from the corona virus lockdown, so expect any references to this to carry the potential for market movement. Get in touch using the form below to discuss how your currency exchange could be impacted and the options available to limit your exposure to the changing currency markets.