The Pound Australian Dollar exchange rate has slipped slightly since markets opened on Monday. While Brexit hopes are keeping the Pound afloat, fresh concerns about the Northern Ireland border are preventing the Pound from gaining on the ‘Aussie’.
GBP AUD edged higher from 1.7455 to 1.7500 last week, but was unable to hold its best levels of 1.7587. On Monday, the pair slipped into the region of 1.74.
Pound (GBP) Weighed by Irish Border Uncertainties
For most of the past week, Pound investors have been looking ahead to the upcoming EU summit in December.
Analysts expect that EU officials will indicate whether or not UK-EU Brexit talks could make significant progress before the end of the year, depending on how many concessions the UK government makes.
As the UK government has recently upped the amount it is willing to pay towards the UK-EU divorce bill, markets became hopeful that Brexit progress would accelerate and this boosted the Pound.
However, on Monday it emerged that agreeing to a post-Brexit deal on the Northern Ireland border could prove more difficult than anticipated.
EU officials have given UK Prime Minister Theresa May a 10-day deadline to improve other points of the Brexit divorce offer, including meeting demands on the Northern Ireland border which has been a key demand from EU negotiators.
According to Jane Foley, currency strategist at Rabobank;
‘Sterling has become more jittery as the focus has changed somewhat from the EU summit which is more or less a binary event to the Northern Ireland issues which is a bit more complicated,’
Essentially, Brexit negotiations have taken focus in Pound trade as expected, but the outlook isn’t as optimistic as thought last week.
If the UK government makes further concessions and attempts to meet deadlines in order to accelerate negotiations before the end of the year, the Pound will see stronger performance.
On the other hand, if negotiations remain slow and under ‘deadlock’ for much longer, investors will become increasingly concerned that UK-EU trade talks may be delayed too long and could even fall through. This would worsen the Brexit outlook and lead Sterling to plummet.
Britain’s economic outlook is concerning too, so UK data due in the coming sessions is unlikely to improve the Pound outlook unless it is considerably impressive.
GfK’s UK consumer confidence report is currently set for Thursday publication, while Markit’s November manufacturing PMI for Britain will be published on Friday.
Australian Dollar (AUD) Kept Afloat by Risk-Sentiment
Investors have found risky currencies like the Australian Dollar more appealing in recent sessions, due to strength in commodities like iron ore and oil, as well as uncertainties in the US.
For example, the Federal Reserve has shown concern about US inflation trends and some officials have hinted that inflation could remain low for more of 2018 than expected.
On top of this, investors are unsure how successful the US Republican Party’s plans for tax cuts will be. Concerns that the tax cuts could be majorly delayed or scaled down have thrown uncertainty into the US fiscal policy outlook which has made riskier currencies more appealing.
However, domestic news has been unable to support the Australian Dollar much over the past week, which has limited the currency’s gains and benefits from risk-sentiment.
The latest Reserve Bank of Australia (RBA) meeting minutes expressed great concern with Australia’s weak wage growth pressures and analysts now believe that Australia’s interest rates are now unlikely to change until 2019 at the earliest.
Still, the ‘Aussie’ was supported slightly last Tuesday by comments from RBA Governor Philip Lowe. Lowe indicated that while the bank was likely to keep monetary policy frozen for some time to come, the next move was unlikely to be a cut.
As bets of an RBA rate cut faded, the Australian Dollar saw slightly stronger demand.
The Australian Dollar could continue to edge higher against the Pound in the coming sessions if the risk-on mood remains in markets. GBP AUD could easily recover from any ‘Aussie’ gains though, unless Australia’s domestic data begins to improve.
Thursday will see the publication of Australia’s October building permits and new home sales data, as well as November’s manufacturing PMI from AiG.
GBP AUD Interbank Rate
At the time of writing this article, the Pound Australian Dollar exchange rate trended in the region of 1.7470. The Australian Dollar to Pound exchange rate traded at around 0.5720.