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Ongoing Brexit Fears Limit Gains for GBP AUD Exchange Rate

July 10, 2017 - Written by Toni Johnson

The GBP AUD exchange rate has improved today, although Sterling remains in a precarious position due to crucial Brexit talks in the background.

Brexit Deal Fears Fail to Prevent GBP AUD Advance

The Pound has risen by 0.3% against the Australian Dollar today, although this is mainly due to AUD weakness rather than any particularly positive UK news.

The latest concerning factor for Pound traders has been future Brexit negotiations. In the wake of Theresa May's draft deal for the rights of EU citizens living in the UK, MEPs and EU officials have strongly criticised the plan.

Declaring that the 5-year residence in the UK for like-citizenship deal falls short, European Parliament official Guy Verhofstadt has written;

‘The European Union has a common mission to extend, enhance and expand rights, not to reduce them,” they wrote. “We will never endorse the retroactive removal of acquired rights. The European parliament will reserve its right to reject any agreement that treats EU citizens, regardless of their nationality, less favourably than they are at present’.

Amid claims that the UK’s deal would equate to ‘second class citizenship’, the incident has raised tensions between the UK and EU as Brexit negotiations drag on.

The influential group of opposing MEPs have also rejected any extension of Brexit talks from two years, which means that the UK is set to definitively exit the EU by March 2019 at the latest.

As well as the draft plan being blasted, MEPs have also focused on things not mentioned, like the status of children born to EU citizens in the UK after Brexit and the possibility of minimum income testing for EU citizens looking to settle in the country.

The government department for Brexit (DExEU) has issued a rebuttal of the MEPs stance, with a spokesperson declaring;

‘The position presented to [the] European parliament is an unhelpful distortion of an offer that several member states have already said is the basis of a good deal. Regrettably, the [MEPs] article includes a number of inaccuracies that are particularly unhelpful and likely to cause unnecessary and needless concern to UK and EU citizens’.

The two opposing viewpoints show that the problem is unlikely to be resolved in the near-term, which leaves an ongoing issue to be resolved as part of wider Brexit talks.

AUD GBP Dip Seen after Pessimistic NAB Bank Forecast

With little direct news about the Australian economy coming out today, the Australian Dollar has instead fallen on a concerning forecast from the National Australia Bank (NAB).

NAB economists have been analysing recent neutral signs from the Reserve Bank of Australia (RBA), which notably failed to hint at an upcoming interest rate hike despite predictions for such an outlook. According to NAB’s experts, this lack of a signified intent has had a negative effect on the Australian Dollar;

’Had the RBA not pointedly refused to join the “tightening bias” party last week, the AUD would likely have ended the week at least a couple of cents higher than it did. Market talk of an impending 80 cent Aussie would have become rife. Knowing this, the RBA looks to have been very deliberate in its choice of words following last Tuesday’s Board meeting, ensuring that even Colombo would have struggled to find even the slightest evidence of a shift away from a neutral policy disposition’.

With this in mind, NAB experts believe that the Australian Dollar may gradually depreciate against the Pound and other peers for the rest of 2017, especially if the US Federal Reserve raises interest rates for a third time in 2017.

GBP AUD Forecast: Sterling Slip Possible on UK Wage Growth Slowdown

The Pound’s recent gains against the Australian Dollar could prove short-lived when Wednesday’s national jobs stats are released.

Projections are for a slowdown in average earnings growth in May, to under 2% with and without bonuses. UK inflation rate stats are out next week, but the previous rate of inflation was 2.9%. If wages do fall as forecast then the Pound could tumble against the Australian Dollar on greater fears of falling real incomes.

An Australian Dollar advance may come on Tuesday when the NAB business confidence score for June comes out. This is considered high-impact, so a significant improvement may be enough to push the AUD GBP exchange rate up.
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