GBP/AUD Exchange Rate Steady amid Cautious NI Protocol Optimism

Pound Australian Dollar (GBP/AUD) Stable on UK-EU Talks Reports

The Pound Australian Dollar (GBP/AUD) exchange rate is edging higher this morning after lacking traction through yesterday’s session.

Cautious optimism amid Brexit uncertainty has helped GBP/AUD make modest gains to trade approximately 0.2% up on the day’s opening levels at AU$1.8540 at the time of writing.

Pound (GBP) Steady on Cautious Brexit Optimism

The Pound (GBP) is steady so far on Thursday, while ticking higher against the Australian Dollar.

Ongoing uncertainty over UK-EU talks on the Northern Ireland protocol has limited GBP recently, although cautious optimism today is helping Sterling to steady.

Ireland’s Taoiseach (Prime Minister) Micheál Martin described a call with UK counterpart Boris Johnson as positive, while Foreign Affairs Minister Simon Coveney sees a ‘window of opportunity’ to reach an agreement on the post-Brexit agreement.

Coveney said:

“I believe… there is an opportunity before us now to seize momentum towards agreeing a constructive way forward through compromise and partnership.

“I believe the remaining issues can be resolved.”

However, a spokesperson for Downing Street said Boris Johnson had ‘raised ongoing concern about the substantial distance between the UK and EU positions’ over the protocol in his call to the Irish Prime Minister.

The latest comments from senior UK and EU officials come after European Commission Vice-president Maros Sefcovic said talks will ‘probably’ continue into next year, adding:

“I think that if there was the clear political will from the UK side these … problems could be solved.

“But looking at how far we progressed over the last four weeks, the level of detail our UK partners want to discuss, I know that we will probably not be able to resolve everything before the end of the year.”

Australian Dollar (AUD) Dented by Central Bank Policy Divergence

The Australian Dollar (AUD) is weakening so far during today’s session after suffering losses from a surging US Dollar.

Support for USD came from the Federal Reserve’s latest policy meeting minutes indicating that the US central bank could accelerate tapering its bond-buying programme, and could raise interest rates sooner if inflation continues to soar.

In contrast, the Reserve Bank of Australia (RBA) recently reiterated its stance for keeping monetary policy loose, saying rising inflation ‘did not warrant an increase in the cash rate in 2022’.

The divergent policy between the RBA and Fed has led to Australian Dollar losses.

Meanwhile, the contagion from the New Zealand Dollar plummeting has also continued to weigh on the ‘Aussie’.

NZD exchange rates tumbled after the Reserve Bank of New Zealand (RBNZ) disappointed investors who hoped for more aggressive tightening of policy than the Bank announced.

Pound Australian Dollar Forecast: GBP/AUD to Struggle for Traction?

Australian retail sales data released tonight may provide the Australian Dollar with some support and limit GBP/AUD.

Forecasts point to October’s retail sales growing 2.5%, a solid increase on September’s 1.3% after three months of contraction.

In the absence of notable data releases towards the end of the week, further reports from negotiations on the Northern Ireland protocol and speeches from Bank of England (BoE) policymakers will likely drive movement in the Pound.

Maros Sefcovic travels to London today to meet with the UK Brexit Minister Lord Frost for further talks. In light of recent comments, significant progress looks likely to remain limited, but signs of optimism could support GBP/AUD.

A speech from BoE Governor Andrew Bailey later today may also prompt Sterling movement.

Uncertainty lingers whether the central bank will raise interest rates as soon as its December policy meeting, so any hints on policy from Bailey could stoke volatility.

Andrew Roberts

Contact Andrew Roberts