Aussie Dollar to Pound Rate Volatile on Brexit Developments

Australian Dollar Forecast: AUDGBP gains by 10% since April

Aussie dollar to pound exchange rates have enjoyed a particularly volatile time this week, with a shift in the value of the currency pairing of as much as 2.5%. This shift in value has seen a difference of as much as €8,600 on a GBPAUD transaction of £200,000. Sterling had rallied earlier this week on fresh optimism amongst traders that the EU and UK were becoming closer to an agreement on UK fisheries, which has been one of the main hurdles to clear in terms of agreeing a post-Brexit trade deal and avoiding a cliff-edge Brexit. However, these hopes have subsided as the week has gone on and positive Australian data has helped curtail the pound’s gains.

Earlier this week the Financial Times, amongst others, reported that negotiations between EU and UK negotiators had been going well this week and that there was a much better chance of a deal being agreed. The report stated, “Despite the EU launching legal proceedings against the UK over the internal market bill, officials in London are increasingly optimistic of a Brexit deal. We’ve gone from about 30% chance of a deal to the other way around. I think it’s almost certain we’ll enter the tunnel.” As a result we saw GBP make gains against AUD, EUR and USD. Throughout the negotiations, we have seen GBP rates strengthen against most of its major counterparts when the chances of a deal look more likely.

GBP Weakens as EU to Take Legal Action Against the UK Over Brexit Divorce Bill

However, this optimism has since been tempered and yesterday afternoon saw GBP’s gains against ADU, EUR and USD slide significantly. The main reason for the fall can be mainly attributed to headlines from Reuters yesterday, which suggested that the EU has launched a legal case against the UK with regards to the Brexit divorce Bill. “We had invited our British friends to remove the problematic parts of their draft Internal Market Bill by the end of September,” the head of the EU’s executive Commission, Ursula von der Leyen said. “The deadline lapsed yesterday.”

As such it appears that any optimism over the UK and EU’s negotiations this week seem to have subsided and the pound suffered a dramatic drop yesterday afternoon as a result. This has presented AUD sellers with a good opportunity to capitalise on a weaker pound and it is likely GBPAUD value will remain low whilst the chances of a No-deal Brexit look more and more likely.

Positive Jobs Data Reduces Chances of RBA Interest Rate Cut

The Australian Dollar has also gained in value this week due to an improvement in domestic labour market numbers. News released on Wednesday night showed that the jobs market grew at a rate of 59.4% in the month of August and showed a significant recovery compared with the previous quarter. There are still restrictions in place across much of the South of the country, particularly the State of Victoria and these regions showed a slower rise than in the North of the country where the COVID outbreak has been less severe. But these numbers show a significant recovery in the jobs market and have helped AUD gain in value.

There had been rumours and concerns that the recent fall in the labour market and recession the country is feeling could lead to further interest rate cuts from the RBA, but this weeks positive news could lead to further rates cuts being less likely, certainly in the short-term. As such this has also helped AUD gain in value as typically a currency will weaken when interest rates are lower. The next RBA interest rate decision and statement is due next week so any clients with an AUD requirement should keep a close eye on the lead up to this event as it could cause significant AUD volatility. Comments from the RBA after the event could also impact AUD rates as this will potentially give an insight into future monetary policy strategy.