Pound to Australian Dollar Exchange Rate Declines as Irish Border and Gibraltar in Focus

Update: News of an increase in UK productivity levels has failed to support the Pound today, with the GBP/AUD exchange rate remaining negative.

The Office for National Statistics (ONS) has reported that productivity in the UK rose by 0.7% in Q4 2017, but traders have remained unimpressed.

Among those holding off on celebrating was Institute of Directors Senior Economist Tej Parikh, who said;
‘Solving the productivity puzzle will require a comprehensive approach.
Directors want to see improvements in the nation’s physical and digital infrastructure, to help boost idea diffusion and connectivity between regions’.

Lack of Progress in Irish Border Talks Drags GBP/AUD Exchange Rate Lower

The Pound has seen minor losses against the Australian Dollar today, as concerns over the Irish border continue to fester.

The issue has remained unresolved with UK and EU negotiators unable to reach an agreement about the status of the border after Brexit.

EU officials have repeatedly asked the UK negotiating team to come up with a solution to the problem, but nothing has been forthcoming so far.

The EU is looking to keep Northern Ireland within the EU customs union to enable frictionless trade, but this has been denounced as untenable by UK officials.

The October deadline to resolve the issue gets closer with every passing day, so there could be continued Pound losses if it remains unresolved.

Signs of Spanish Agreement on Gibraltar Fails to Boost GBP/AUD Exchange Rate

Although there has been hints of positive developments between the UK and Spain in Brexit negotiations, this hasn’t been enough to push the GBP/AUD exchange rate up.

There were concerns that Spain would attempt to seize control of Gibraltar after Brexit, but Spanish Foreign Minister Alfonso Dastis has downplayed them:

‘We recognise that Gibraltar was ceded to Britain more than 300 years ago but our aim is to recover it. However, we do not want to convert the conversation between the European Union and Britain into a hostage-type situation.’

Australian Dollar to Pound Exchange Rate Resilient despite Escalating Trade War Fears

In a recurrent situation, the Australian Dollar has advanced against the Pound and other peers including the Euro (EUR) and US Dollar (USD) on US/China trade war fears.

Following China’s threat to impose tariffs worth $50bn on US goods, Donald Trump has since floated the retaliatory idea of $100bn worth of tariffs on Chinese imports.

Neither nation has fully committed to these proposed charges yet, but there are still fears that the trading of blows could become more extreme in the future.

As a consequence, the US Dollar has come to be regarded as a riskier currency to trade in, which has made currencies like the Australian Dollar more desirable.

Pound to Australian Dollar (GBP/AUD) Exchange Rate Forecast: Will Expanding UK Trade Deficit Damage Sterling?

The main UK economic release next week will be the trade balance reading for February, which will come out on Wednesday.

The figure is tipped to show an expansion of the existing trade deficit, from -£3.074bn to -£3.4bn.

The trade balance reading is the most important piece of data next Thursday, but that doesn’t mean the Pound won’t be influenced by other ecostats on the day.

Measures of construction, manufacturing and industrial output are also due out, and are forecast to show rising activity levels in February.

If traders ignore the UK’s historic struggle with trading balances and focus on the output stats, the Pound to Australian Dollar exchange rate could still see a late rise next week.

For Australian Dollar traders, the next data to watch out for will be business and consumer confidence readings, coming on Tuesday and Wednesday.

Current estimates are for rising levels of optimism in both areas, which could facilitate a mid-week AUD/GBP exchange rate rise.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon