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Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Rallies as US-China Tension Drags Down AUD

January 23, 2019 - Written by John Cameron

GBP/AUD Exchange Rate Rises as UK’s Departure from EU could be Delayed

This morning, former Chancellor, George Osborne, stated that a delay to the UK’s departure from the European Union was the ‘most likely’ option.

Following this, the Pound rose against the Australian Dollar, with the pairing currently trading at an inter-bank rate of AU$1.8310.

US officials have confirmed they plan to pursue the extradition of Huawei’s Chief Financial Officer, Meng Wanzhou, with the US Department of Justice issuing a statement:

‘We will continue to pursue the extradition of defendant Ms. Meng Wanzhou, and will meet all deadlines set by the US-Canada Extradition Treaty. We greatly appreciate Canada’s continuing support in our mutual efforts to enforce the rule of law.’

Following this the risk-sensitive Australian Dollar fell against the Pound on the likelihood of increased tensions between the US and China, with the latter warning that if the US were to pursue this action then China would respond.

Yesterday: Pound (GBP) Boosted by Record High UK Employment and Wage Growth

Yesterday saw the Pound rally against the Australian Dollar following the release of November’s UK unemployment and wage growth figures.

Employment in the UK reached a record high, with 32.54 million people in work, while the percentage of people looking for work remains at a 40-year low of 4%.

The Pound has further benefitted from the better-than-expected growth of wages, with average earnings including bonuses increasing by 3.4%, showing that wage growth has continued to outpace inflation.

This means UK wage growth has hit an 11-year high, moving up to its highest level since the 2008 financial crisis.

However, the Pound’s rally was likely cut short by a statement released by European Commission Spokesman Margaritis Schinas, who stated:

‘If you like to push me and speculate on what might happen in a no-deal scenario in Ireland, I think it’s pretty obvious, you will have a hard border.’

Australian Dollar (AUD) Weighed Down by China’s Weakened Economy

Over this week’s session, the GBP/AUD exchange rate has risen in the wake of the release of figures suggesting that China’s economy had slowed to levels last since in 1990, which dented the risk-sensitive ‘Aussie’.

It is speculated that China’s economy may be slowing faster than originally expected, as a speech by Chinese President Xi Jinping stressed a need for maintaining political stability, and is being interpreted as a sign the party is concerned about the social implications of a slowing economy.

He stated:

‘We have to be highly alert to ‘black swan’ [unexpected] incidents and also guard against risk of ‘grey rhino’ [obvious yet ignored threat].’

It is likely this speech has lowered sentiment in risk-sensitive currencies, such as the ‘Aussie’, as Pradeep Taneja, a specialist in Chinese politics at the University of Melbourne states:

‘The fact that Xi Jinping was highlighting these risks in this meeting does indicate that there is concern – there is in fact serious concern – about the implications of slowing economic growth rate […] The Chinese Communist Party never raises alarm. They never say things that are bad. They always indicate that they are in control.’

GBP/AUD Outlook: Will Low Australian Unemployment Buoy the Australian Dollar?

Tomorrow Australian seasonally adjusted employment change figures will be released, with a forecast increase of 16.5K people, although if this number is higher than expected, the ‘Aussie’ could claw back some losses from Sterling.

The Australian unemployment rate will also be released, which could see AUD make gains if it remains steady at 5.1% as forecast; if there is a further-than-expected drop the ‘Aussie’ could regain some of the losses suffered in the session today.

Brexit is also likely to remain a catalyst for movement in the pairing, as any further indication of the likelihood of Article 50 being extended could see sentiment in the Pound rise.

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