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Australian Dollar to Pound Exchange Rate is Crushed as Arrest of Huawei CFO Sparks Trade Tensions

December 6, 2018 - Written by John Cameron

The Pound to Australian Dollar (GBP/AUD) exchange rate soared today, and is currently trading up over 1% at AUD$1.7722, as geopolitical risk flares up after the arrest the arrest of Huawei’s Chief Financial Officer, Sabrina Meng Wanzhou.

On the back of yesterday’s poor Q3 GDP figures, this pummelled the ‘Aussie’.

The Pound (GBP), however, was strengthened by the recent bout of Brexit developments, with the European Court of Justice’s announcement that Brexit could effectively be reversed if Article 50 is unilaterally revoked.

This has eased tensions surrounding Brexit for now, with the MP Dominic Grieve’s amendment being passed, allowing Parliament more freedom should Prime Minister Theresa May’s UK-EU withdrawal agreement be rejected on 11 December.

The ‘Aussie’ meanwhile has been hit by increased trade tensions between the US and China, with US President Donald Trump’s recent ‘Tariff Man’ tweet suggesting that the G20 truce was not set in stone.

GBP/AUD Exchange Rate Rallies as Brexit Options Soothe ‘No-Deal’ Fears

Sterling, however, was dented by the release of yesterday’s UK services PMI for November, which showed a decrease at 50.4 – down 1.8 against October’s figure and hovering only slightly above contraction territory.

The GBP/AUD exchange rate was further bolstered by Theresa May’s show of resilience against MPs calling for a Brexit vote delay.

Support for her withdrawal agreement came from the Chancellor of the Exchequer, Phillip Hammond, who commented:

‘This deal is the best deal for leaving the EU that is available or going to be available.’

However, tomorrow sees the release of the Halifax house price index for November, which is expected to decrease.

Tomorrow will also see the release of the UK consumer inflation expectations, with investors paying close attention to any sign of a decrease.

Australian Dollar Exchange Rates Plummet as Wanzhou’s Arrest Sparks US-China Row

The ‘Aussie’ was further dented today by the release of some relatively poor trade balance figures for October, which showed a significant drop to AU$2,316m against expectations of a surplus of AU$3,200m.

However AUD saw some relief in the release of today’s Australian retail sales figures for October, which showed a better-than-expected increase.

Accompanying Australian exports and imports data for October showed an increase in imports by 3% while exports remained static at 1%.

The arrest of Huawei’s Sabrina Meng Wanzhou has caused considerable concern for AUD investors, with markets being sensitive to trade-related news.

The Head of Trading Asia-Pacific at OANDA, Stephen Innes, commented:

‘As if the market needs more headline risk, this news is quite significant as the US government is attempting to persuade allies to stop using Huawei equipment due to security fears, is triggering a sell-off in tech stocks.’

GBP/AUD Outlook: Brexit and Trade Tensions Remain in Focus

The GBP/AUD exchange rate is likely to remain driven by political forces this week, as Theresa May rallies to gain support for her Brexit deal.

With MPs being increasingly attracted by the idea of a second referendum – after the passing of Grieve’s amendment and the ECJ’s ruling on Article 50 due on Monday – May is expected to come under increasing pressure ahead of the 11 December vote.

Monday next week will see the release of a slew of UK ecostats, with particular focus being on the release of October’s GDP figures.

AUD investors will also be keeping a close eye on the release of Monday’s release of home loans data for October.

Overall, both currencies will be sensitive to political shocks in the coming week, with the UK’s parliamentary Brexit vote looming ever closer and increasing trade tensions causing concern for ‘Aussie’ investors.

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