Since the triggering of Article 50, the Pound has been highly volatile against the Australian Dollar, with a high of 1.65 giving way to a low of 1.62.
The high-impact and almost inescapable UK news has been the activation of Article 50, to formally start the UK’s exit from the EU.
Sterling initially dipped against the Australian Dollar and despite a momentary recovery has remained at a weekly low in the GBP AUD exchange rate.
With the floodgates now open on Brexit negotiations, early talks are likely to have a major influence on the Pound depending on how they seem to be developing.
The issues of security and trade have been central to initial Brexit commentary. Slamming the brakes on discussions in this area, however, have been EU leaders such as German Chancellor Angela Merkel.
Commenting on UK plans to conduct simultaneous exit and future negotiation talks, Merkel said;
‘The negotiations must first clarify how we will disentangle our interlinked relationship. Only when this question is dealt with can we begin talking about our future relationship’.
On this front, Chancellor Philip Hammond has stated that the UK will be unable to ‘have our cake and eat it’, while Theresa May has similarly declared in her Article 50 activation letter;
‘We understand and respect your position that the four freedoms of the single market are indivisible and there can be no “cherry picking”’.
If it looks like UK negotiators are unable to get an early foothold on key issues like trade, immigration and international security, then the Pound could be progressively damaged against the Australian Dollar.
The cost of iron ore remains a pressurising influence on Australian Dollar demand. In the near-term, China Iron and Steel Association Vice President Li Xinchuang forecasts;
‘We think Chinese steel production will decrease step by step. How much gross steel we can produce will depend how much we can export. What is the future? We are thinking the global supply of iron ore is very serious for the long-term’.
The implication of falling production in China is negative for Australian traders, who may have to contend with lower prices in the future. This could worsen the Australian Dollar’s value in the long term.
Recent Interbank GBP AUD Exchange Rates
At the time of writing, the Pound to Australian Dollar (GBP AUD) exchange rate was trading at 1.62 and the Australian Dollar to Pound (AUD GBP) exchange rate was trading at 0.61.
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