The Pound has surged across the board this week thanks to a more confident long-term Brexit outlook from the UK government, while risk-correlated currencies look to weaken due to the protectionist stances of US President-elect Donald Trump
Will Sterling be able to hold its ground against the Australian Dollar and New Zealand Dollar in the coming year despite previously bearish Pound forecasts?
Long-Term Pound (GBP) Outlook Improves Following Brexit Speech
Tuesday’s European session saw UK Prime Minister Theresa May make a key speech on her government’s aims for the Brexit process.
She confirmed that the UK government would not aim to keep full access to the EU single market, but did promise that a Parliamentary vote would be held on the final Brexit deal. This raised investor hopes that MPs could ensure the UK would not be stuck with a bad UK-EU deal after the Brexit process ends.
In an attempt to demonstrate the tough stance she would take in negotiations should EU leaders attempt to ‘punish’ the UK, May stated the government would accept no deal sooner than a bad deal.
As a result, the long-term economic outlook for Britain improved among analysts and markets, as did the long-term outlook for Sterling.
US President-Elect Donald Trump Causes Volatility in Risky AUD and NZD Trade
If there’s one word that markets are tired of hearing lately it’s probably ‘uncertainty’.
The high levels of uncertainty in the short to long-term future of the US economy, for example, is the primary reason risk-correlated currencies like the Australian Dollar and New Zealand Dollar may see limited favour in the coming year.
US President-elect Donald stated on Monday that the strength of the US Dollar (USD) is preventing US companies from competing on the world stage.
In doing so, Trump caused quick and sharp movements throughout the currency market which is the primary reason for this week’s risk-rally, limiting Sterling’s gains against AUD and NZD.
With this ability to influence currency markets with mere words, as well as the possibility that Trump’s administration may dent US trade ties around the world, investors may become less willing to buy into riskier assets going forward.
GBP AUD NZD Forecast: Brexit and Trump Developments Will Affect Long-Term Trajectory
The Pound outlook may be better than previously expected, while long-term demand for risk-correlated currencies like the Australian Dollar and New Zealand Dollar may be harmed by uncertainty in the foreign exchange market, but this doesn’t mean GBP AUD and GBP NZD exchange rates will advance in 2017.
Commodity trade looks to continue improving following slow recovery last year. 2016 saw prices of iron ore (Australia’s most lucrative commodity) and dairy (New Zealand’s primary export) recover considerably from the lows seen in 2015.
As early 2017 trade has already seen prices of iron ore defy expectations, by remaining strong instead of falling, the Australian Dollar could also perform better than expected in the face of uncertainty.
The New Zealand Dollar is also likely to remain appealing to investors due to its high yields, especially if the Federal Reserve lets down market hopes of 2-3 US interest rate hikes throughout the year.
GBP AUD NZD Interbank Rates
At the time of writing, the Pound Australian Dollar exchange rate trended in the region of 1.63, while the Pound New Zealand Dollar exchange rate trended at around 1.71.
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