Minor GBP AUD Advance Seen despite Overall Pound Weakness

September 27, 2017 - Written by Ben Hughes

STORY LINK Minor GBP AUD Advance Seen despite Overall Pound Weakness

Today’s Pound to Australian Dollar advance primarily comes from an Australian Dollar decline, given that most recent UK news has been negative.

Yesterday, the Pound ticked up against the Australian Dollar, from an opening exchange rate of 1.6980 to close near 1.7066.

UK Economic News: GBP Traders Rattled by EU Reception to Brexit So Far

Recent economic announcements concerning the UK have not been especially supportive, which has limited the extent of GBP AUD exchange rate gains.

The main focus for traders has been on a meeting that took place on Tuesday, between UK Prime Minister Theresa May and Donald Tusk, the President of the European Council.

Tusk was meeting May in the wake of her earlier speech about Brexit in Florence, which had a mixed reception from EU leaders.

May’s apparent purpose was to get Brexit negotiations back on track, but Tusk remained cautious about calling the comments successful. Summing up the situation, Tusk said;

‘I feel cautiously optimistic about the constructive and more realistic tone in the prime minister's speech in Florence and of our discussion today.

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There is no sufficient progress yet, but we will work on it’.

The latest news on Brexit has been that Brexit Secretary David Davis is planning to ‘crunch through the technical detail’ on key issues like the Irish Border today.

Davis has previously been criticised for seemingly holding up talks with his insistence on covering a trade deal first, so this news can only be considered ‘good’.

In addition to the Irish border issue, other key points for EU officials are the status of EU citizens in the UK and whether the UK ends up paying an exit bill.

Another factor that has been holding the Pound back today has been the ongoing struggle between airline companies Boeing and Bombardier.

The UK has been dragged into the issue because Canadian-operated Bombardier have a factory in Northern Ireland; the support of DUP MPs in Northern Ireland is instrumental to the current Conservative government.

In brief, Boeing believe that Bombardier used government subsidies to sell jets cheaply in the US. As part of their actions to oppose Bombardier, Boeing have managed to secure a 220% tariff against imports of Bombardier’s latest jet into the US.

This threatens to make the aircraft unsellable due to the already-astronomical costs per unit, which could lead to the closure of the Northern Irish factory.

Bombardier is one of Northern Ireland’s largest employers, which means that the pressure is on for the UK government to reach a deal with the US that saves the thousands of jobs at stake.

If Bombardier is too pressurised and closes the factory, this could be considered a betrayal by the DUP, potentially risking the Conservative government’s ability to function in the House of Commons.

AUD Update: Forecasts made for Higher Iron Ore Prices

With little in the way of direct news today, the Australian Dollar’s slip against the Pound has been caused by a strengthening of the US Dollar.

The only notable domestic announcements for Australia have concerned the price of iron ore. In recent weeks, the cost of the commodity has dropped, but there are hopes for a slowdown or even a recovery.

Looking at the issue has been Westpac bank – economists have stated that;

’We have been arguing that markets were too downbeat on iron ore for some time and that a rise to the late $70s or even early $80s was likely. Thus the recent high at $80 was fully justified in our view.

Our concern now is that iron ore markets are more likely to soften as the National People’s Conference and seasonal plant closures came into view. [However], the lack of supply pressure should limit near term downside risks’.

GBP AUD Outlook: Pound Turbulence Possible on BoE Governor’s Speech

The Pound could make greater gains against the Australian Dollar in the near-term, when Bank of England (BoE) Governor Mark Carney speaks on Thursday.

Carney will be giving remarks early on Thursday and could touch on future BoE monetary policy.

If he implies that the UK could see higher interest rates in the coming months, then the Pound may rally.

Likewise in Australia, near-term influence could come from a speech from a central banker. This will be the Reserve Bank of Australia’s (RBA) Guy Debelle, who could also touch on future interest rate decisions.

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TAGS: Pound Australian Dollar Forecasts