Anticipation as the UK finally prepares to move onto the second phase of Brexit talks helped to boost the Pound Australian Dollar exchange rate.
With Theresa May set to formally discuss the UK’s future trading relationship with the EU with her cabinet for the first time there are hopes that a greater degree of clarity will soon emerge.
This could offer the GBP AUD exchange rate a solid boost, providing that signs do not point towards the government pursuing a harder form of Brexit and suggest a greater degree of unity amongst ministers.
As analysts at Rabobank noted:
‘May will reportedly state that she wants the UK to leave the EU’s single market and customs union while retaining many of the benefits. However, it is reported that May will demand the right to start registering new arrivals from the EU during the transitional phase and to begin negotiating trade deals with non EU members.
‘Both practices would be denied for current EU members. While negotiating with the EU, May must also attempt to prevent an explosion within her cabinet between members such as Rudd and Hammond who wish to keep a close relationship with the EU and those such as Johnson and Rees-Mogg who want to move away from the EU to avoid the UK becoming a “vassal state”.’
Even so, as Chief EU negotiator Michel Barnier has continued to warn that the UK cannot expect to cherry-pick and negotiate a bespoke trade deal the Pound remains distinctly vulnerable.
If markets see a greater risk of future economic and trade disruption then the GBP AUD exchange rate could shed further ground.
Neutral RBA Minutes Forecast to Limit Australian Dollar Demand
The mood towards the Australian Dollar, meanwhile, could sour on Tuesday if the Reserve Bank of Australia’s (RBA) December meeting minutes prove disappointing.
While investors were unsurprised by the RBA’s decision to leave interest rates on hold at its latest meeting there are concerns that policymakers are unlikely to return to a hawkish bias any time soon.
This could limit the appeal of the ‘Aussie’ over the coming months, even though recent domestic data has continued to paint an encouraging picture.
Unless inflationary pressure shows solid signs of picking up AUD exchange rates are likely to remain on a somewhat weaker footing.
However, if policymakers talk down the prospect of monetary loosening this could limit any softness in the short term.
Wider market risk appetite could offer support to the GBP AUD exchange rate ahead of the New Year, though, with investors bracing for the latest US tax reform developments.
Current GBP AUD Interbank Exchange Rates
At the time of writing, the Pound Australian Dollar exchange rate was trending higher in the region of 1.7443. Meanwhile, the Australian Dollar Pound exchange rate was slumped around 0.5731.
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