The Pound remained in high demand against the Australian Dollar on Thursday’s afternoon session, rising by 0.7% in the pairing.
A development in UK-EU relations has seen European Council President Donald Tusk effectively rebuff Theresa May for her accusation that the EU was meddling in the UK general election.
If May responds to these comments negatively, the situation may worsen further, weakening the GBP AUD exchange rate as the risks of a ‘Hard Brexit’ increase.
(First published 11:04, May 4th, 2017)
The Pound to Australian Dollar exchange rate hit 1.74 on Thursday, the best rate since September 2016.
The currently favourable GBP AUD exchange rate is vulnerable to shocks, however, if Prime Minister Theresa May continues to demonise the European Union ahead of Brexit talks in June.
May fired a warning shot on Wednesday, claiming that EU officials were trying to interfere with the UK general election. In her speech, May argued that;
‘Britain’s negotiating position in Europe has been misrepresented in the continental press. The European commission’s negotiating stance has hardened. Threats against Britain have been issued by European politicians and officials. All of these acts have been deliberately timed to affect the result of the general election.
The events of the last few days have shown that whatever our wishes, and however reasonable the positions of the Europe’s other leaders, there are some in Brussels who do not want these talks to succeed, who do not want Britain to prosper’.
These extraordinary accusations have been denied outright by EU officials, while UK opposition party leaders have accused the PM of biasing voters ahead of the June 8th election.
Paradoxically, May stated in the same speech that;
‘We continue to believe that no deal for Britain is better than a bad deal. But we want a deal. We want a deep and special partnership with the European Union, and we want the EU to succeed’.
Pushing the EU away with one hand and bringing it closer with the other is unlikely to endear the Prime Minister to EU negotiators. Despite May’s claims that a Conservative election win will strengthen her negotiating hand, further smears on the EU could burn bridges, leaving a turbulent ‘Hard Brexit’ as the only option.
If EU leaders do react negatively to the latest insult, the Pound could slump heavily against the Australian Dollar.
Future Australian Dollar movement is still dependent on the nation’s housing market, which some fear is reaching ‘bubble’ level.
Speaking recently on the issue was Reserve Bank of Australia (RBA) Governor Philip Lowe;
‘Given the high levels of debt and housing prices relative to incomes, it is likely that some households respond to a future shock to income or housing prices by deciding they have borrowed too much. This could prompt a sharp contraction in spending’.
If Australian spending is suddenly reined in as a response to high household debt, then the Australian Dollar may slide. This would be due to implied falling retail activity and slower economic growth.
Recent Interbank GBP AUD Exchange Rates
At the time of writing, the Pound to Australian Dollar (GBP AUD) exchange rate was trading up at 1.73 and the Australian Dollar to Pound (AUD GBP) exchange rate was trading down at 0.57.
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