Over the course of the last week the Australian dollar has done well against Sterling beating the recent lows since the beginning of the pandemic. The AUDGBP rate currently sits at 0.5651 which is a few percent below the lowest point in COVID-19. The main reason for the fall is the uncertainty surrounding the pound and Brexit. It’s clear that the concerns surrounding a no deal Brexit are returning and the UK Government pursuing a path to try to break the withdrawal agreement was met with some serious concern by the market.
The bounce back for the Australian economy is slowly underway however is moving considerably slower than many would have liked. An increase in lockdowns in the past few months across certain areas and rises in the COVID-19 cases of late has left much to be desired. However furthermore than the internal issues the relationship with the rest of the world is probably a bigger concern for Australia.
Trade War With China
China, the biggest trading partner for Australia has seen relationships sour since the start of the year after Ministers in Australia directly blamed China for the Pandemic. The relationship since that point has been rocky with two Australian journalists only last week trying to quickly leave the country following intimidation from the Chinese authorities.
China has invested around $50bn into Australia in the last 6 years with most of that coming in before 2017 when the Australian Prime Minister at the time Malcolm Turnbull made changes to foreign security laws as he believed there was influence in the political process. This was arguably the start of tensions between the two countries, however there is now a considerable new low. Chinese investors this year have spent 47% less in Australia this year and whilst some might argue they want less involvement, that’s a considerable amount of money not invested in the Australian economy. China has spent only 9.7% compared to this time last year around the world in other countries, so there is a concerted effort to spend less in Australia.
The overall effect on the Australian dollar may not come to fruition for some time however the other issue is more the amount of trade done with China. There is a huge amount of raw material mined in Australia that goes to China, and if China were to stop purchasing these goods that could have a larger effect on jobs and the general economy. The issue Australia has is the absence of another buyer for these goods, so whilst they rely on China for this, falling out with them is not the best option.
The UK Government has drawn its own line in the sand for the middle of October which they suggest if a deal in principle can’t be agreed by then, both sides should just leave it and then move on. Negotiations with the EU have tended to rely only progress significantly once time is of the essence and this once again strikes me as a necessity for the UK to try and get something pushed through. For as long as there isn’t a deal, Sterling is likely to struggle in finding support.
The pound has struggled over the past three years whenever the No Deal Brexit reality comes that little bit closer to fruition, it looks as though – for the next few weeks at least – this will continue. If you’re looking have a requirement for an AUDGBP exchange,recent market movement is certainty something that it may be worth capitalising on. There is of course always the chance you gain more if a deal is agreed, but the chances of not even a bare bones deal I think would take the market by surprise.
If you’re buying Aussie dollars using Sterling then you could see some volatility in your favour. The only thing that is certain in the next few weeks is that the AUDGBP currency pair will continue to move on a daily basis.