GBP AUD Rates Move Higher – More Trade Tariffs Expected

The Pound continues its rally higher against the Australian Dollar with rates breaking 1.83 for the GBP AUD pair. Much of the market movement stems from an uncertain outlook for the Australian economy but also due to the wider uncertainty from the ongoing trade wars between the US and China. More trade tariffs are expected imminently from US President Donald Trump which will be levied on China and have a knock on effect on Australia. More of this action is likely to see further Australian Dollar weakness.

These next couple of months will be crucial for the future direction of the Pound against the Australian Dollar as Brexit moves towards the final stages. Although no guarantees can be made both the EU and Britain are aiming to agree the withdrawal agreement some time in November around the time of the EU summit that month. There is reportedly a softening of stance from the EU over the Irish border which could help facilitate a deal.

The bottom line is that any agreement should be seen as positive for the pound as confidence will be restored which will be welcome for individuals and businesses. There is, in my opinion considerable uplift to be seen in such an outcome and a break towards 1.90 could be in the offing. However until such an agreement is reached the Pound is likely to struggle to move too much higher with such high degree of uncertainty over Brexit. These next couple of months will virtually determine the final destination of Brexit and hence it is likely to be a very fraught period for Sterling exchange rates across the board. There could also be additional delays creating an even longer period of not knowing.

Australian house price data is released tomorrow and could offer some clues as to the future path of interest rate hikes down under. The Australian housing market is frequently cited by the Reserve Bank of Australia (RBA) which clearly takes on board its importance in the economy. A cooling housing market would almost certainly deter the RBA from taking any immediate action in terms of hiking interest rates.

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