Hopes of Brexit Breakthrough Spark Pound Australian Dollar (GBP/AUD) Exchange Rate Surge
Signs of potential progress towards a Brexit agreement gave the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate a solid boost ahead of the weekend.
After talks between Boris Johnson and Irish Taoiseach Leo Varadkar yielded a joint statement noting that they see a ‘pathway’ towards a deal the mood towards Pound Sterling (GBP) improved dramatically.
Although no solid details of a deal emerged, with significant political hurdles still remaining, markets took the statement as evidence that a Brexit breakthrough remains on the cards.
Even so, the bullishness of the GBP/AUD exchange rate looks fragile thanks to the lack of concrete progress and the risk of talks souring once again.
As analysts at Danske Bank noted:
‘The problem is that PM Johnson’s potential majority in the House of Commons is also very fragile and he cannot afford to lose support from DUP and the group of hard Brexiteers within his own party. This means that one should not get hopes too high yet, and our base case remains another extension followed by snap election but the coming days are going to be extremely important.’
Positive Signals from US-China Trade Talks Boost Australian Dollar
The Australian Dollar (AUD) also found support on Friday, however, as hopes of a possible US-China trade deal picked up.
With the latest round of trade discussions in Washington resulting in some positive signals from US officials the general sense of market risk appetite improved.
While the odds of a sweeping trade deal emerging look slim the potential for an easing in trade tensions was enough to lift the risk-sensitive Australian Dollar higher against many of the majors.
However, if talks break up without any de-escalation of the trade dispute AUD exchange rates could face another sharp decline.
As long as the global economy looks set to slow in the face of ongoing trade issues the appeal of the Australian Dollar may weaken.
Dovish RBA Minutes Set to Fuel AUD Exchange Rate Losses
Further gains could be in store for the GBP/AUD exchange rate as markets brace for the release of the Reserve Bank of Australia’s (RBA) latest set of meeting minutes.
With investors already seeing high odds of the RBA cutting interest rates again in the coming months a dovish set of minutes could weigh heavily on the Australian Dollar.
If policymakers appear on course to cut rates sooner rather than later AUD exchange rates are likely to shed significant ground.
On the other hand, evidence of greater optimism among RBA policymakers could help to limit the downside potential of the antipodean currency.
Even though the Australian economy has shown signs of weakness in recent weeks if the RBA adopts a less dovish outlook this may be enough to give the Australian Dollar a solid rallying point.
Comments are closed.