Brexit Uncertainties May Limit GBP/AUD’s Potential Advances

Following last week’s impressive advances, the Pound to Australian Dollar exchange rate continues to trend with an upside bias today. This is despite concerns that UK-EU Brexit negotiations are on the brink of collapse. The Australian Dollar is unappealing due to rising bets that the Reserve Bank of Australia (RBA) will ease monetary policy considerably in its next policy decision.

Last Week: ‘Aussie’ Hit by Reserve Bank of Australia Easing Bets

The Pound to Australian Dollar exchange rate surged last week. Even as the UK government’s hard tone on Brexit negotiations weakened Sterling, the Australian Dollar’s weakness helped the pair to gain.

Investors sold the Australian Dollar throughout the week, in reaction to Reserve Bank of Australia signals. The RBA has indicated that it will cut interest rates and introduce quantitative easing (QE) soon.

The RBA has avoided QE unlike many other major central banks until now. As a result, this jump in dovishness is weighing heavily on the Australian Dollar outlook.

Three Things to Watch For This Week

  1. Brexit Developments

UK negotiators are saying that negotiations are virtually over while EU officials say they will continue. There are talks scheduled for this week, and any more solid news on the direction of talks will be closely watched by investors.

  1. PMI Projections

At the end of the week, Markit will publish UK and Australian PMI projections for October. These will give investors a better idea if how these economies are weathering the coronavirus pandemic this month.

  1. UK Retail Sales

Friday will see the publication of Britain’s September retail sales results. Amid concerns about UK consumer activity during the coronavirus pandemic, these figures may be closely watched.

GBP/AUD Outlook

Key data is due this week, but developments in the ongoing Brexit and coronavirus crises will remain the focus. If a no-deal Brexit becomes more likely, the Pound could shed some of its recent gains.

Josh Jeffery

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