The Pound has steadily risen against the Australian Dollar over the current week, but could be in for upsets if UK trade missions fail to bear fruit.
Recent UK trade news has seen a flurry of activity to secure the UK’s trade links, with Liam Fox travelling to the Philippines and Australia, Theresa May journeying to Saudi Arabia and Philip Hammond taking the trading flag to India.
Dubbed by some as ‘Empire 2.0’, this strategy could secure valuable trading lines for the UK after Brexit, but may also alienate potential trading partners in the future.
The Philippines and Saudi missions are particular examples of this, with trading in the former being complicated by President Rodrigo Duterte’s bloody and controversial campaign against drugs.
A trading partnership with Saudi Arabia may also limit the number of nations wishing to trade with the UK in the future. As well as being criticised for human rights abuses and oppressive attitudes towards women, the matter is further compromised by the UK providing arms for Saudi attacks against Yemen.
If the UK Government looks unlikely to secure stable trade links across the world, then the Pound could gradually depreciate. This may also occur if the UK can only find partnerships with ‘controversial’ nations, which could lower confidence in greater trade deals being established.
After dropping sharply at the start of April, the still-fluctuating cost of iron ore is likely to keep influencing near-term Australian Dollar movement.
The price of the nationally important commodity recently rose above $80 per tonne, following the conclusion of a four-day Chinese holiday.
This rally is not expected to last, however, with forecasts for a slide to around $52 per tonne in 2017 becoming increasingly commonplace.
Commodities experts are concerned that this price drop could put smaller miners and traders (know as ‘juniors’) out of business, which could destabilise the national iron ore market.
Offering a long-term outlook, Gavekal Dragonomics experts predict;
‘A lot has to go right to avoid an iron ore price crash. Yet the odds are good that this correction will take longer to materialise than the pessimists believe’.
Providing a more pessimistic view is Minelife Senior Resources Analyst Gavin Wendt;
‘The juniors in Australia have a break even cost of production of around $US60 a tonne. As the iron ore price decreases, it’s sleepless nights for a lot of those MDs (managing directors)’.
If Chinese iron ore demand picks up and remains consistently high, then the Australian Dollar could appreciate against the Pound due to better expectations for future commodity trading.
Recent Interbank GBP AUD Exchange Rates
At the time of writing, the Pound to Australian Dollar (GBP AUD) exchange rate was trading at 1.65 and the Australian Dollar to Pound (AUD GBP) exchange rate was trading at 0.60.
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