GBP/AUD Exchange Rate Eases, US-China Relations Come Under Strain over Hong Kong Protests
The Pound Australian Dollar (GBP/AUD) exchange rate eased today, with the pairing currently trading around AU$1.884 after China’s foreign ministry seemed to signal a potential light at the end of the tunnel, saying Beijing are now on the same page with the US over “phase one” of a possible trade deal.
However, AUD gains were held back and hopes for a resolution faltered when the US Congress voted to increase pressure on Hong Kong authorities clamping down on protestors. Tensions between the two superpowers flared, with China threatening “strong countermeasures”.
Ipek Ozkardeskaya, Senior Market Analyst at London Capital Group, said:
‘Needless to say that Beijing didn’t like the US sticking its nose into its internal affairs at all, and threatened to retaliate… As such, the optimism regarding a possible trade deal between the US and China has been shot down within a couple of days after the Washington negotiations. It looks like trouble is brewing again on the US-China trade front.’
With China representing Australia’s largest trading partner, any flare-up between the world’s two largest economies is likely to weigh on investor confidence. In a risk-off market the ‘Aussie’ is also vulnerable as traders turn to safe-haven currencies.
Today also saw September’s Australian Westpac leading index fall by -0.08%, adding further downward pressure on the struggling Australian economy.
GBP/AUD Exchange Rate Steady, Sterling Traders Await EU Announcement on Brexit Proposal
The Pound (GBP) fell today following news that the DUP were unhappy with Prime Minister Boris Johnson’s new Brexit proposal, with a spokesperson for the party saying ‘it would be fair to indicate gaps remain and further work is required.’
As a result, UK markets remain cautious ahead of this afternoon’s announcement by the EU’s chief Brexit negotiator. Michel Barnier is expected to disclose whether mutual agreement between the EU27 exists, facilitating a possible Brexit deal sign off at Thursday’s EU Summit.
Irish Agriculture Minister, Michael Creed, offered some encouraging comments:
‘There is some room for optimism now but we’re not there yet. [I]f we do get a deal in Brussels on Brexit we have been here before with the withdrawal agreement which didn’t get through the House of Commons so there are some hurdles to be cleared yet and I’m not underestimating those in any way… They are significant and reflective of the magnitude of the challenge but we remain hopeful.’
In UK economic news, September’s UK growth figure undercut a 1.8% increase, sticking at 1.7% and fuelling concerns for softening growth caused by Brexit uncertainty.
No change in CPI inflation – 1.7%y/y in September. Core inflation (excl.'s food & fuel) did tick up from 1.5%y/y to 1.7%y/y. Main downward push came from motor fuels, main upward push from household goods, hotels & rec. & culture goods. RPI fell from 2.8%y/y to 2.4%y/y. pic.twitter.com/cSSjrdkTsC
— Rupert Seggins (@Rupert_Seggins) October 16, 2019
GBP/AUD Outlook: Brexit Developments to Remain in Spotlight
Australian Dollar (AUD) traders will be looking ahead to Thursday’s Australian unemployment rate figure for September, which is expected to hold at 5.3%.
Thursday will also see the publication of the Australian employment change figure for September, which is expected to ease from 34.7 thousand to 15 thousand.
Meanwhile, September’s UK retail sales data could draw GBP interest tomorrow as the figure is predicted to flat line at 0%.
Brexit developments will remain firmly in the driving seat of the GBP/AUD exchange rate, with Sterling traders keen to reach tomorrow’s European Council Summit. Any signs of a UK-EU Brexit breakthrough before or at the summit would likely see another buying frenzy in the Pound as the odds for a no-deal outcome finally diminish.
However, if the DUP raise doubts over Boris Johnsons’ withdrawal agreement, we could see the Pound’s gains clipped on fears that the agreement might fail at a Parliamentary level.