Pound Australian Dollar (GBP/AUD) Exchange Rate Trades Sideways after EU agrees to Brexit ‘Flextension’

GBP/AUD Exchange Rate Flat as Brexit Extension Confirmed

The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is rangebound this morning after the EU announced it would agree to the UK’s request for a Brexit extension.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8819, leaving it virtually unchanged from the morning’s opening rate.

Pound (GBP) Stable Following ‘Flextension’ Announcement

The Pound (GBP) is currently trading in a narrow range this morning, as the EU granted another Brexit delay to the UK.

Sterling stalled at the end of last week as EU leaders were forced to mull another Brexit extension after it became clear the UK would not be able to leave the EU by 31 October with a deal in place.

Announcing the extension via Twitter, European Council President Donald Tusk said:

The ‘Flextension’ will allow the UK to leave before 31 January if the UK is able to ratify the Brexit deal before then.

Given the EU’s response was widely anticipated by investors the announcement failed to offer any impetus for movement in the Pound.

This lack of direction is also partly driven by the growing risks of a snap UK election.

Australian Dollar (AUD) Steady amidst US-China Trade Optimism

At the same time, the Australian Dollar (AUD) is steady this morning thanks to rising US-China trade optimism.

The two powers are now reportedly ‘close to finalising’ parts of a preliminary trade agreement , after Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke to Chinese Vice Premier Liu He on Friday.

A statement published by Lighthizer’s office read:

‘They made headway on specific issues and the two sides are close to finalizing some sections of the agreement. Discussions will go on continuously at the deputy level, and the principals will have another call in the near future.’

Markets are hopeful that a ‘phase 1’ trade deal could be signed by US President Donald Trump and his Chinese counterpart Xi Jinping at next month’s APEC summit.

However, so far there have been no signs that either side is ready to wind back damaging trade tariffs, limiting any upside in the ‘Aussie’ this monring.

GBP/AUD Forecast: Election Risks to Drag on Sterling?

With the immediate threat of a no-deal Brexit now averted, the focus for GBP investors has quickly turned to a possible general election.

Boris Johnson will put forth a motion calling for a general election later this evening, although it remains unclear whether he will have the numbers needed for it to pass.

Should the motion pass however, expect to see the resulting political uncertainty inject fresh volatility into the Pound to Australian Dollar (GBP/AUD) exchange rate this week.

Outside of US-China trade developments, the focus for AUD investors this week will be the publication of Australia’s quarterly consumer price index.

Will an expected slowing of inflation in the third quarter dent the ‘Aussie’ as it puts more pressure on the Reserve Bank of Australia (RBA) to continue cutting interest rates?

Matthew Andrews

Contact Matthew Andrews