How is Brexit Affecting GBPAUD?

AUD GBP Lower Ahead of PMI Data for the UK Economy

The two key factors driving GBPAUD value this week continue to be Brexit and COVID developments. As such we are seeing Sterling under increased volatility. The pound has risen this week on increased optimism of a Brexit trade deal being agreed but has been held back by new the new three-tier COVID restriction system introduced by the government this week. The new stricter measures being brought in have resulted in fears of further economic downturn across the regions in the country most impacted, and this is weighing on GBP value. Already we have seen UK unemployment data show a rise this week as the impact of restrictions earlier this year is starting to take its toll.

Despite there being some more positive sentiment around the progress of Brexit talks between UK and EU negotiators there are still many hurdles to overcome and the EU Summit on Thursday this week is likely to create significant volatility for Sterling exchange rates. The Summit will see EU leaders meet to discuss developments in negotiations and share their stance on the matter. The 15th October has been seen for some time as the deadline for a conclusion to negotiations, particularly by UK PM Boris Johnson and so the Pound is likely to be impacted by any headlines and stories that come out of the meeting. Boris Johnson has said this week that time for agreeing a deal is in ‘short supply’ and that the UK are prepared to walk away from negotiations if there is no progress on key topics, such as fisheries, by the end of this week.

The pound has tended to suffer when the chances of a No-deal Brexit looks more likely, and so if there is no progress made this week then there is a good chance the GBPAUD rate could weaken by the end of this week. It is therefore worth speaking with your account manager here before the Summit kicks off on Thursday in order to protect yourself from potential adverse market movement.

Other data to keep an eye out for this week includes Australian employment numbers released in the early hours of Thursday morning. The labour market has been particularly negatively impacted in Australia due to COVID restrictions and there are concerns that the numbers could continue to show a rise in unemployment. Jobs numbers have also been closely monitored by the RBA when considering monetary policy change and interest rate cuts, and a further fall in the labour market could prompt a further rate cut at the RBA’s next meeting and a potential weakening of AUD.

AUD Weakens as Tensions with China Intensify

AUD value has taken a wobble against its peers this week on rumours of an import block in China of Australian raw materials. There has been no official confirmation of these reports so far, but the news has seen investors steer clear of the Aussie until there is further clarification. The Australian economy, and therefore the value of AUD, is heavily reliant on exports to China, one of their largest trade partners, and if the news is confirmed then it is likely to weigh on AUD value and make it cheaper to buy.

This apparent ‘trade block’ from China is a further sign of a deterioration in relations between the two nations that has been ongoing for months now. The tensions originally escalated after Australia called for an inquest into China’s role in the spread of COVID-19 and the fall out has had an impact on AUD exchange rates since. China has retaliated with a range of different ways and means in recent months, with tariffs imposed on certain imports from Australia and suspending imports on certain red meats. A confirmed block on coal exports from China would raise the stakes however, with these exports making up a substantial level of all Australian exports. In the first 6 months of this year Australia exported a staggering $7.3bn worth of coal to China, which was 8% higher than in the same period of 2019.

This story is likely to have a significant impact on GBPAUD rates and anyone with an Aussie requirement should keep a closely eye on headlines as to whether these stories are confirmed. If confirmed, we could see AUD value weaken further and this could present some good opportunities for anyone selling a foreign current to buy Australian dollars. Get in touch using the form below to discuss these factors in more detail, and how your upcoming currency exchange could be impacted.