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John From Moneycorp

The Pound vs Australian dollar

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Hi all - latest currency review is below, thanks.

The highlight of the Aussie's week was the Australian employment data on Thursday morning. They were good numbers, with 51k people finding either full-time or part-time jobs in June. The dollar's initial reaction was to move higher but the move did not carry through. Not for the first time, investors did not entirely trust the figures, which analysts at one local bank described as "plain weird". In the end the Aussie had a slightly below-average month. It lost half a US cent, held steady against the Canadian dollar and went up by three quarters of a cent against the pound.

Sterling was hampered by politics - the government only narrowly won two votes in parliament - and by disappointing UK economic data. Wage growth slowed, inflation did not make the expected pickup and retail sales in June fell short of all but the most pessimistic forecasts.

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This week, Dominic Raab, the new Brexit minister, conceded to a parliamentary committee that he is not leading the process but merely part of the "chain of command".  Theresa May will herself take control of negotiations with Brussels. Mr Raab, somewhat unfortunately, likened the change to "shifting the Whitehall deck chairs”.  Investors seemed happy with the new situation, believing it to be more conducive to a soft Brexit.

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Some positive data released in Australia - a surge in the number of new building approvals were issued in June - this is promising as there have been fears recently over the Aussie housing market.

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Inflation rose to 2.5 per cent in July - this was the first increase in the rate in 2018.

The Office for National Statistics reported today that the Consumer Price Index rose by 2.4 per cent year on year in June - the increase was in line with expectations

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UK data news - retail sales rose by 0.7% between June and July (according to the Office for National Statistics).

That compares to a 0.5% fall in June and is above forecasts for a 0.2% increase.

This news hasn't impacted the pound/Australian dollar yet.

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The Australian dollar and the euro suffered equally over the week, falling by 0.4% against the pound. In both cases the move had a lot to do with the gyrations of the Turkish lira, which lost and regained a fifth of its value. In the euro's case it was its proximity - geographically and economically - to the lira: for the Aussie it was the fear that Trump's tariffs on Turkey marked another escalation in the trade war that threatens all commodity-producers. The Australian economic data were fairly helpful. Although the economy lost 3,900 jobs in July there was a swing from part-time to full-time working and unemployment fell to a six-year low of 5.3%.

Data from the UK were less compelling. Disappointment about slow wage growth and falling inflation was balanced by satisfaction that retail sales grew strongly in July.  And behind it all lurked the Brexit bogeyman. Credit rating agency Fitch said on Thursday that it sees a growing risk of a no-deal divorce.  

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Round up of the latest currency news below.

The survival rate of Australian prime ministers in recent years is such that they allegedly get their business cards printed by the dozen. For the last five of them the average tenure was 2 1/4 years. Malcolm Turnbull came to grief on Friday as a result of another power struggle within the ruling Liberal party, his place taken by Scott Morrison, the former finance minister. Investors were not impressed by the performance, especially as the Liberal coalition is only managing to hang on to power with a wafer-thin majority. The Aussie was able to squeeze a fifth of a cent from the US dollar, which was beset by political scandals of its own, but lost nearly a cent to the pound.

Sterling's week centred on the "no-deal-Brexit" papers, of which the government released the first two dozen on Thursday. Although theoretically negative for the pound, investors preferred to believe that they confirmed the impracticability of Britain leaving the EU without a deal.

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Interesting update on the significant move that occurred yesterday.

(30/08/2018) Sterling climbed steeply against the Australian dollar yesterday, after EU Brexit negotiator Michel Barnier stated the European Union wants to make a Brexit deal. He also alluded to the possibility of the UK being offered a bespoke arrangement. The positive sentiment strengthened the Sterling and by day’s end the pound had improved over 1.5%, up to 1.7850 from a 1.7520 low.

The move is also a reminder that, Brexit worries aside, underlying growth in the UK economy has been solid. There are no further details, nor current roadblocks that either side is willing to compromise on, but for now the mood in the market is more sterling-positive than in recent weeks.

At the same time in Australia we have again seen huge political upheaval, this time in the shape of former-PM Michael Turnball’s ousting. Should he also resign from Parliament, the government will lose their 1-seat majority and new PM Scott Morrison may call another General Election. Couple this uncertainty with the escalating trade war between Washington and Beijing and its likely negative impact on Australia’s export-driven economy and you can certainly make the argument for further sterling gains.

But in the land of politics, in both counties, nothing is certain and anything is possible. Predicting the market is equally difficult, but evaluating the risks is possible.

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The Australian dollar rate has been struggling to find its feet against its counterparts, but against the pound it has made notable progress owing to Brexit uncertainties. The Australian dollar is volatile owing to US-China trade concerns and acts as a barometer of this topic and global trade in general.

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The Pound Australian Dollar (GBP/AUD) exchange rate has recovered slightly after yesterday’s fall, and is now trading at AU$1.7646.

The risk-averse ‘Aussie’ was hit by comments from the US President Donald Trump on Monday, with news that he planned to raise tariffs on US$200 billion in Chinese exports – an increase to 25% against the previous 10%.

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While many countries are hoping for an end to the tensions between US and China which is having such a disruptive effect on global trade, a report suggesting the US-China trade war may not impact Australia as much as initially feared was good news for the country’s currency. Ecostats showed a wider than expected trade surplus but headline inflation slowed to 1.9% in the third quarter, in line with forecasts. Aussie strengthened by 0.5% against the US dollar after the result, and some smaller gains against the greenback after Australia’s employment rate held steady at 5.0% as the number of people in work increased to 33,000 in October, higher than the expected number of 20,000. However, the numbers were not good enough to counter the rising pound and euro after a tide of positive Brexit sentiment.

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GBP to AUD forecast: The next 7 days could have a major influence on the future of GBP/AUD exchange rates as Theresa May is doing everything in her power to convince Conservative MPs to back her Brexit deal.

Over the last 6 weeks GBP/AUD exchange rates have been dropping like a stone. Currently the currency pair has fallen 13 cents and the likelihood is further falls are on the horizon up until December 11th.

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The Pound Sterling Australian Dollar (GBP/AUD) exchange rate slumped overnight on the RBA’s cash rate release after finding a ceiling at 1.732 in yesterday’s session, the static release of 1.5% prompted another spell to the downside.

The pair is currently at 1.72454, slightly above yesterday’s low of 1.72089 and the yearly low of 1.70980.

In line with institutional expectations, the RBA left the cash rate unchanged at 1.5%, where it has been since 2016.

Speaking with regards to the decision, RBA Governor Philip Lowe painted a picture of global economic expansion but goes on to to comment that trade tensions (read US-China trade war) have the potential to prompt a slowdown in global trade.

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Despite an early-week surge and persisting Brexit fears, the Australian Dollar (AUD) plunged on Wednesday and the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was able to recover its losses.

After opening this week at the level of 1.7447, GBP/AUD plummeted over a cent on news of a US-China trade truce. On Monday, GBP/AUD hit an 11-month-low of 1.7217.

However, GBP/AUD rebounded from its lows on Tuesday and during Wednesday’s session Australian Dollar weakness made it easier for the pair to recover all of its weekly losses and trend nearer the week’s opening levels again.

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The Australian dollar has weakened sharply after Australian GDP (Gross Domestic Product) data saw fresh concerns over the Trade Wars weigh on the AUD. This highlights just how volatile this pairing is after moving close to 6 cents in just a week.

The pound to Australian dollar exchange rate could be about to enter an extremely volatile session as we get closer to the Parliamentary vote on Brexit in the House of Commons next week. The pound has been under real pressure against a much stronger Australian dollar as the market begins to question the likelihood of Theresa May getting her deal through Parliament.

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Any idea that the Aussie had turned a corner in the sentiment stakes was put to rest this week as it moved lower on a broad front. It held its own until Tuesday but then headed decisively south. The Aussie lost almost one US cent and it fell by nearly two against sterling.

Its troubles were the result of a cocktail of confidence denting developments. Reports of a trade deal between Washington and Beijing looked ever less plausible as the White House failed to spell out what had been agreed. Turmoil in global stock markets killed investors’ appetite for “risky” currencies. When the Reserve Bank of Australia kept its Cash Rate benchmark unchanged at 1.5% its statement gave no hint of any increase in the pipeline. As for sterling, investors became less boot-faced about it after a government defeat in the Commons appeared to hand more control of Brexit decisions to Parliament. Therefore, or so the thinking went, a no-deal Brexit had become far less of a possibility.

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GBP/AUD Exchange Rate Down as Brexit Uncertainty Continues with Possible Postponement of Key Vote

The Pound Sterling Australian Dollar (GBP/AUD) exchange rate is down 0.8% today, and is currently trading at AUD$1.7546, as Brexit uncertainty continues to rattle currency markets, with the latest news being that Prime Minister Theresa May could be seeking to postpone tomorrow’s parliamentary vote.

GBP was already under pressure today following the announcement by the European Court of Justice’s (ECJ) ruling on Article 50 – enabling the UK to unilaterally revoke the Brexit process – putting pressure on the Government as a second referendum becomes more attractive to some MPs.

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The Tories have triggered a vote of no confidence in Theresa May, which causes further uncertainty surrounding Brexit. The 1922 Committee chair, Sir Graham Brady has now received more than the 48 letters required from Conservative MPs for a leadership challenge. Sir Brady has stated there will be a ballot this evening.

Over 20 Conservative back benchers have publicly announced their letters of no confidence have been submitted, among those are several prominent figures of the Tory Party. Former Brexit minister Steve Baker and Chair of the European Research Group, Jacob Rees-Mogg. It seems that the cancellation of yesterday’s vote has proved unpopular amongst Tory members and was the cause of the additional letters to the 1922 committee.

This does not bode well for Sterling with GBP/AUD now in the 1.73s. May’s hopes for renegotiating the Irish Border deal were dashed yesterday when she travelled to the Hague as news emerged Angela Merkel and Jean Claude Junker both told the PM there would be no re-negotiation on the Irish back stop.

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With PM Theresa May winning the vote of no-confidence, the Pound Sterling to Australian Dollar (GBP/AUD) was able to continue trading in the region of $1.75. Data published overnight showed that Australian consumer inflation expectations rose from 3.6% to 4.0%. 

With 158 Conservative MPs reportedly prepared to support Theresa May in the no confidence vote on Wednesday evening the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate found fresh support. Investors were encouraged by the prospect of an end to the political uncertainty that has gripped markets, at least for the time being, even as worries over Brexit remain. 

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