The Pound (GBP) has risen considerably by 0.7% against the Australian Dollar (AUD) today but may shed gains in the near future depending on how key businesses react to the official trigger of Brexit negotiations.
When Article 50 is activated on March 29th, cutting off any lingering hopes of the UK remaining in the EU, the Pound may drop sharply against the Australian Dollar.
The GBP AUD exchange rate could also continue falling long-term as international businesses consider their future in a UK outside the EU.
One immediate effect may be the departure of investment banks from the City of London, the UK’s financial hub.
While some banks have already confirmed that they will relocate when Article 50 is activated, others have been more cautious about jumping ship. The main issue has been whether the UK remains in the EU single market after Brexit, something that might not be known for months after negotiations begin.
Among those holding off on an immediate exodus are HSBC, where CEO Stuart Gulliver has confirmed that;
‘Activities specifically covered by EU legislation will move’.
While some banks are only expected to transport workers overseas instead of relocating entirely, the cumulative effect of this action from multiple major banks may seriously shake confidence in the UK financial sector and weaken the Pound.
If the Australian Dollar is to claw back gains against the Pound in the future, the Reserve Bank of Australia (RBA) may need to significantly upgrade its outlook for the Australian economy.
The latest RBA minutes offered a generally positive forecast for future growth, although the minutes additionally stated;
‘Recent data continued to suggest that there had been a build-up of risks associated with the housing market’.
The next RBA interest rate decision is due on April 4th; the Australian central bank could bolster the Australian Dollar if it predicts that growth will continue to pick up in the near-term.
In spite of such potential optimism, however, the state of the national housing situation may remain a thorn in the side of stable economic growth and limit Australian Dollar gains.
Recent Interbank GBP AUD Exchange Rates
At the time of writing, the Pound to Australian Dollar (GBP AUD) exchange rate was trading at 1.60 and the Australian Dollar to Pound (AUD GBP) exchange rate was trading at 0.62.
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