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Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Slides as Hammond Says No-Deal Brexit could Cause ?Significant Disruption?

January 25, 2019 - Written by John Cameron

Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Slides despite DUP Lending Conditional Support to ‘Plan B’

This morning the Pound Australian Dollar (GBP/AUD) exchange rate slipped despite reports that the Democratic Unionist Party (DUP) said they would support Theresa May’s Brexit ‘Plan B’.

Their support would be on the provision that the Irish backstop is time-limited, despite comments yesterday from the European Union that this was not possible.

This saw the GBP/AUD slide, and the pairing is currently trading at an inter-bank rate of AU$1.8392.

Chancellor Philip Hammond has warned this morning about a no-deal Brexit, saying:

‘There will be very significant disruption in the short term and a very significant hit to our economy in the medium to long term.’

These comments also likely caused the pairing to continue to slip after reaching highs of AU$1.8506.

Yesterday: Pound (GBP) Rallies Despite Barnier’s Comments on the Backstop

Yesterday afternoon saw the Pound Australian Dollar (GBP/AUD) exchange rate push higher, despite comments from Michel Barnier, the EU’s Chief Brexit Negotiator.

Barnier stated the European Parliament would not approve a withdrawal agreement that did not have an Irish backstop which will avoid a hard border in Ireland, insisting that it would be ‘legally impossible’ for the UK to forge a separate treaty with Ireland.

Barnier, when questioned about whether he would be receptive of Theresa May’s requests for concessions on the Irish backstop stated:

‘This security net is part of the withdrawal treaty […] It is a guarantee for the preservation of peace and stability on the island of Ireland, the guarantee that in all hypotheses we will not rebuild a hard border, that we will preserve the Good Friday Agreement and the Common Travel Area.’

Australian Dollar (AUD) Weighed Down as US and China Reported to be ‘Miles and Miles’ away from Resolution

Thursday saw Australia’s unemployment rate fall to a better-than-expected 5% in December, its lowest level since June 2011.

Australia saw an increase in part-time employment, which rose by 24,600, although this did mask a 3,000 decline in full-time workers, the second month in a row that full-time employment slipped.

US-Sino tensions likely caused the ‘Aussie’ to take a further hit, as US Commerce Secretary Wilbur Ross said:

‘We’re miles and miles from getting a resolution. Trade is very complicated. There are lots and lots of issues.’

Speaking about the Chinese Vice Premier Liu’s scheduled visit to Washington next week, Ross stated:

‘People shouldn’t think that the events of the next week are going to be the solution to all of the issues between the United States and China. It’s too complicated a topic. I believe that China would like to make a deal. I believe that we would like to make a deal. But it has to be a deal that works for both parties.’

Meanwhile, US Treasury Secretary Steven Mnuchin was more upbeat, saying that the US and China were ‘making a lot of progress’, although he failed to elaborate on the areas in which they had made progress.

GBP/AUD Outlook: Will the Parliamentary Vote on Brexit ‘Plan B’ Drag Down Sterling?

As there is a lack of UK or Australian economic data releases towards the end of this week’s session and the beginning of next it seems likely that the pairing will fluctuate as a result of political factors.

For the ‘Aussie’ the likely catalyst to spark movement is going to be the continuation of the trade tensions between the US and China, and if there are any further signs that there could be further tension such as the US beginning the process to extradite Huawei’s CFO, Meng Wanzhou.

The start of next week’s session will likely see fluctuations in Pound exchange rates as the UK parliamentary vote on May’s ‘Plan B’ is scheduled for Tuesday, so any signs that she will fail to get Parliament to approve her plans, or that a no-deal Brexit is likely, could see the Pound fall from the highs that have been seen this week.

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