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- GBP/AUD spot rate at time of publication: 1.7970
- Bank transfer rates (indicative guide): 1.7428-1.7554
- Transfer specialist rates (indicative guide): 1.7789-1.7897
- More information on specialist rates here
The Pound-to-Australian Dollar rate could recover to levels not since this May following any Brexit trade agreement, NAB forecasts suggest, although the bank has also warned that heavy losses could befall Sterling this week if the UK walks away from the negotiating table.
Pound Sterling has been volatile in recent days having come under pressure against a vast majority of its major rivals including the Australian Dollar although, crucially, it retains a fractional gain over the Euro and so may not yet reflect any Brexit-related disappointment that could still materialise from ongoing talks.
Meanwhile, Australian exchange rates have been left reeling by speculation suggesting China is to close its market to Aussie coal, although losses have resulted as much from a U.S. Dollar rebound as they have Chinese mercantilism.
But the ongoing Brexit talks will be the foremost influence on the Pound-to-Aussie rate over the coming days, given that it doesn’t yet reflect either a market disappointment nor any kind of progress toward a trade deal.
Above: Pound-to-Australian Dollar rate shown at daily intervals.
"Markets probably won’t overdo the GBP slide at this stage, suspecting something could be salvaged. An actual no deal would see GBP at 1.20 and maybe towards 1.15 in time, but markets won’t get confirmation of that until closer to the end of the year,” says Ray Attrill, head of foreign exchange strategy at NAB. “If the UK walks this week (not our base case), with media headlines of ‘that’s it… ‘no deal’, expect GBP/USD to slide towards 1.25 initially.”
NAB’s estimate that GBP/USD would likely fall to 1.25 in response to a British decision to walk away from the EU negotiating table would see GBP/AUD fall to around 1.7433 if the talks sour, substantially below the 1.7975 seen Wednesday, if the main Aussie exchange rate AUD/USD held its current 0.7170.
Conversely, the bank’s estimate of a GBP/USD rally to 1.33 following a deal implies a GBP/AUD rally to around 1.8549.
“Some real progress has been made recently, with Frost noting that both sides were going further than usual under an FTA to agree on a framework for state subsidy policy,” Attrill says. “There is a high degree of bluff and counter bluff going on. Brussels may well be prepared for a British walk-out; the question then being how far do EU leaders go on Thursday and Friday in rescuing a deal and bringing the UK back to the table?”
Above: Pound-to-Australian Dollar rate shown at weekly intervals.
Negotiators from both sides have acknowledged progress in talks aimed at agreeing preferential trade terms to take effect after the current standstill transition period ends on December 31.
Roadblocks to a deal remain with the EU’s continued pursuit of automatic access to British fishing grounds and a continued authoritative say over matters of UK economic policy in a post-Brexit world.
Prime Minister Boris Johnson and European Commission chief Ursula Von der Leyen are to speak by telephone Wednesday to discuss next steps ahead of a Thursday European Council summit that also acts as a self-imposed UK deadline for a deal to be struck. So far markets have been happy to assume that Johnson will find a way to justify continuing the negotiations, and so long as this assumption isn’t abruptly challenged ahead of the weekend Sterling might remain relatively supported.
“If instead things turn for the better in the next few days and a deal is struck then expect GBP/USD to rally to between 1.32-1.33 initially and build on that to somewhere between 1.35-1.3750, before year-end as markets await confirmation,” Attrill says. “The middle way and our base case, is the UK does not walk this week and talks continue into late October/early November when a deal is agreed, leading to the aforementioned GBP rise.”
Attrill and the NAB team assume a Brexit deal will eventually be reached, which is expected to lift the Pound-to-Australian Dollar rate from 1.79 to 1.85, a level it’s seen remaining near to throughout the next year.