Pound Australian Dollar (GBP/AUD) Makes Gains despite UK-EU Concerns
The Pound Australian Dollar (GBP/AUD) exchange rate is edging slightly higher at the start of this week’s trading after the Bank of England (BoE) and Reserve Bank of Australia (RBA) dented their respective currencies last week.
Sterling is coming under pressure this morning due to Brexit-related tensions, leaving GBP/AUD to trade flat at AU$1.8272 at the time of writing.
Pound (GBP) Ticks Higher Despite Brexit-Related Tensions
The Pound (GBP) is struggling at the start of the week following reports that the UK could invoke Article 16 of the Northern Ireland protocol.
Ongoing UK-EU talks over the protocol remain in deadlock, leading to speculation the UK could use Article 16 to suspend parts of the agreement over the Northern Ireland border and customs checks.
Threats to trigger Article 16 are fuelling concerns the UK-EU trade deal could collapse as the EU may ‘set aside’ the Brexit trade deal in response.
Ireland’s foreign affairs minister Simon Coveney commented:
“I believe that if the British government essentially refuses to implement the Protocol, even with the extraordinary flexibilities that are now on offer, and instead looks to set it aside then I think the EU will respond in a very serious way to that.
“It means that the Trade and Co-operation Agreement that was agreed between the British government and the EU was contingent on the implementation of the Withdrawal Agreement, which includes the protocol.
“One is contingent on the other. So if one is being set aside, there is a danger that the other will also be set aside by the EU.”
The BoE’s decision to keep interest rates on hold at 0.1% last week is also limiting the Pound as investors continue adjusting their positions and bet on when the central bank may raise interest rates.
Australian Dollar (AUD) Subdued Despite Improving Market Sentiment
The Australian Dollar (AUD) is lacking significant support at the start of this week’s session as announcements from central banks continue to weigh on AUD exchange rates.
Following last week’s RBA decision to leave interest rates unchanged and the release of the Bank’s statement on monetary policy reiterating that rates will likely remain on hold until 2023, the ‘Aussie’ has weakened.
The increasingly divergent monetary policy stance between the RBA and Federal Reserve is also limiting AUD exchange rates, after the Fed confirmed expectations to taper its bond-buying programme.
However, a risk-on mood has underpinned the risk-sensitive Australian Dollar with modest support and limited any losses.
The latest Chinese trade surplus data boosted risk-on trade after figures released last night revealed a record-high surge of $84.54 billion in October, well above forecasts of $66.76 billion.
As the Australian Dollar acts as a proxy for the Chinese economy, AUD exchange rates benefitted.
Pound Australian Dollar Forecast: Northern Ireland Protocol Talks to Drive GBP/AUD Volatility?
The Pound Australian Dollar exchange rate could be set for more significant movement over the coming days.
If the UK activates Article 16 of the Northern Ireland protocol as reports suggest, GBP/AUD could experience volatility.
Comments from BoE policymakers may drive additional movement in Sterling following last week’s rate decision.
Some analysts labelled BoE governor Andrew Bailey the ‘unreliable boyfriend’ due to his hawkish comments in the lead up to the interest rate announcement, and have suggested the Bank’s credibility is at risk of being undermined as a result, meaning speeches this week could cause swings in Sterling.
Meanwhile, the Australian Dollar will remain sensitive to market risk appetite ahead of business confidence data released overnight.
Forecasts point to the NAB business confidence index edging higher for a second consecutive month in October.