Pound to Australian Dollar (GBP/AUD) Exchange Rate Rises as Chinese Military Says US is ‘Destroyer of World Peace’

The Pound to Australian Dollar (GBP/AUD) exchange rate rose by 0.3% today after China’s Defence Ministry said on Sunday that the US represents the biggest threat to world peace. As a result, the risk-averse ‘Aussie’ suffered as tensions between the world’s two largest economies continue to escalate.

The pairing is currently trading around AU$1.763.

Last Week: Pound Sinks as Downing Street Backtracks on Brexit Withdrawal Agreement

The GBP/AUD exchange rate fell from highs of AU$1.817 to lows of AU$1.750 last week following reports that Downing Street had backtracked on the UK-EU Brexit Withdrawal Agreement.

Sterling suffered from renewed fears over the possibility of a no-deal Brexit when the transition period is set to end on December 31st this year.

Downing Street said it was ‘working hard to resolve outstanding issues with the Northern Ireland Protocol’. This drew sharp criticism from both the European Union and Northern Ireland.

The shadow Northern Ireland secretary, Louise Haigh, commented:

‘It beggars belief that the Government is – yet again – playing a dangerous game in Northern Ireland and sacrificing our international standing at the altar of the Prime Minister’s incompetence.’

In Australian economic news, last Wednesday saw the release of September’s Westpac consumer confidence gauge confirm consensus and rise from -9.5% to 18%.

Westpac said that the results could influence October’s Reserve Bank of Australia’s Federal Budget announcement, saying that the odds had risen on the Bank loosening its monetary policy.

‘Consumer confidence is returning to more normal levels, although the sensitivity to progress in managing the virus and the opening up of economies remains key to the outlook’, said analysts at Westpac.

Vaccine Hopes Buoy ‘Aussie’

Last Friday saw the release of the UK manufacturing production figure for July. This rose by 6.3%, while industrial production fell by -7.8%.

Friday also saw the UK’s GDP figure for July rise by 6.6%. But this was not enough to buoy the GBP/AUD exchange rate as jitters over Brexit eclipsed UK economic data.

Yael Selfin, the chief economist at KPMG UK, was also downbeat in his analysis. He warned of the risk of a second wave of Covid-19 infections in autumn. This could, he said, derail the ‘nascent recovery and put the economy into a lower gear’.

Meanwhile, growing hopes of a coronavirus vaccine provided a boost for the risk-sensitive Australian Dollar. AUD edged higher despite concerns over deteriorating US-China trade relations.

Three Things to Watch out for This Week

  1. Brexit Developments

The UK’s Brexit situation will remain in focus with Monday set to see Parliament debate the Internal Market Bill. Any signs of UK-EU relations deteriorating would weigh on Sterling.

  1. Covid-19 Vaccine News

The Australian Dollar could edge higher against its peers this week if hopes over a Covid-19 vaccine continue to grow. AUD would benefit from renewed confidence in Australia’s economy which is heavily reliant on global economic stability.

  1. Bank of England’s Interest Rate Decision

The Bank of England (BoE) is forecast to hold its interest rates at 0.1% on Thursday. However, any dovishness about the British economy in the Bank’s monetary policy statement would prove GBP-negative.

GBP/AUD Outlook

The GBP/AUD exchange rate will likely fluctuate wildly this week as the UK enters a critical stage in UK-EU Brexit negotiations. Any further signs of talks between the two powers breaking down would prove GBP-negative as fears of a no-deal Brexit would severely dampen confidence in the British economy.

David Moore

Contact David Moore