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Australian Dollar Pound Slumps as Brexit Deal Hopes Rise

Australian Dollar Exchange Rates

The Australian Dollar Pound exchange rate tumbled last week as investors became increasingly hopeful for major progress to be made in the Brexit process. The pair slipped again on Monday but has avoided dropping back to last Thursday’s yearly low.

AUD GBP dropped from 0.5713 to 0.5652 last week and while the pair dropped again on Monday it remained in the region of 0.56. The pair briefly hit a yearly low of 0.5584 last Thursday.

Australian Dollar (AUD) Weighed by US Dollar Strength

The Australian Dollar has been unable to hold its ground against the strong Pound on Monday. While demand for the Pound has strengthened considerably, the Australian Dollar’s own strength has also been limited.

Domestic support in Australia has been decent, but the currency has been weighed overall by stronger demand for the US Dollar (USD) amid news that the Republican Party’s tax plans were able to overcome a major obstacle in the Senate last week.

With fresh hope that US tax cuts will be successfully implemented, the US Dollar has seen stronger performance and this has weighed on demand for risky currencies like the ‘Aussie’.

Still, the Australian Dollar’s losses were limited slightly by news that iron ore had re-entered bull market. As iron ore is Australia’s most lucrative commodity this supported the ‘Aussie’.

Recent Australian data has also supported the Australian Dollar and helped it hold away from its worst levels. Monday’s Australian business inventories report from Q3 improved from -0.5% to 0.2%, beating 0.1% forecasts.

The data was enough to encourage some analysts to forecast around 0.8% growth for Australia in Q3. Australia’s Q3 growth data will be published on Wednesday.

Pound (GBP) Surges on Hopes for Brexit Deal

After months of obstacles and deadlocks in UK-EU Brexit talks, last week saw news emerge that negotiators were getting closer to agreeing to a deal on the Brexit divorce process.

The Brexit ‘divorce bill’, including financial obligations to the EU that Britain must pay in order to leave, had long been a source of contention between negotiators, but it seems that agreements on the price had finally been reached following the UK government’s latest concessions.

On top of this, EU negotiators have shown confidence that deals could be reached soon, even amid uncertainty about issues involving the Irish border.

Ireland and Northern Ireland both wish to maintain a soft border following Brexit. While UK officials had previously indicated this was not possible, further concessions were made on Monday.

With hopes for a deal to be made before the December 14th EU summit continuing to build, the Pound has seen a surge in market demand.

According to Lee Hardman from MUFG;

’If a green light is provided today for talks to move on to future relations, including a timely transition arrangement, it would open the door for further Sterling gains in the near-term,’

Australian Dollar Pound Forecast: RBA Decision Ahead

Tuesday could be a big session for the Australian Dollar Pound exchange rate, as while Pound investors digest the latest Brexit news, Australian Dollar investors will react to the Reserve Bank of Australia’s (RBA) December policy decision.

The RBA is not expected to make any changes to monetary policy, but any shift in tone could still influence the Australian Dollar outlook considerably.

AUD will see stronger demand if the RBA is more optimistic than expected about Australia’s economic outlook, but if the bank ramps up concerns about domestic inflation or wages the ‘Aussie’ will weaken.

The Pound, on the other hand, is likely to continue to strengthen if it looks likely that the UK and EU will agree to a Brexit divorce deal by the EU summit.

In this scenario, market hopes for trade talks to unlock in the coming months and the Pound outlook will improve significantly.

AUD GBP could also be influenced by data. Australia’s Q3 Gross Domestic Product (GDP) results, due Wednesday, could boost the Australian Dollar if they impress.

AUD GBP Interbank Rate

At the time of writing this article, the Australian Dollar Pound exchange rate trended in the region of 0.5620. The Pound to Australian Dollar exchange rate traded at around 1.7788.