The pound’s rise against the AUD has been more pronounced of late, when measured next to its improvements against some of the of the other heavily traded currencies.

GBP/AUD rates are trading close to one month high again, having fallen sharply at the beginning of February. Sterling’s value tumbled as fears over a no-deal Brexit intensified, with AUD gaining value as a result moving back under 1.79.

Currency Pair% Change in 1 monthDifference on £200,000

At this point it looked as though the AUD would once again plenty of support below the 1.80 threshold, a level which historically has provided plenty of protection for both buyers and sellers.

However, as we often see in the currency markets, this almost artificial value was not sustainable. The pound quickly reversed the trend, gaining over five cents at last week’s high. This move equates to an additional $5,000 on a £100,000 exchange, a healthy return considering the pound's recent challenges.

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Why did the AUD see its value fall despite the current fears surrounding Brexit

The current upturn for GBP was likely facilitated by a number of economic factors, including the reducing chances of a no-deal Brexit. Another key factor was the recent decision by Westpac, one of Australia’s largest banks, to cut their growth forecasts from 2.6% to 2.2% for 2019 and 2020 respectively. They also predicted that the Reserve bank of Australia (RBA) would cut interest rates again this year, with two prospective 0.25% deductions factored into their estimates. If this prediction is correct, it means that Australia will bring its already record low interest rate down to 1% by November of this year.

Investors reacted to this negative outlook, selling off their AUD positions in haste, thus cementing the AUD’s recent losses. Whilst the AUD has found support around the current levels, it is unlikely to quell fears of further losses and a drop back below 1.85 over the coming weeks. 

Fears over Brexit continue to help offset the current negativity surrounding the Australian economy, which has seen Manufacturing & Services PMI figures fall below 50 for the first time in three years. This is a key indicator that the contraction witnessed in the Australian economy at the turn of the year has intensified. This news is likely to sap further confidence, and with investors' risk already appetite minimal due to a slowdown in global growth and fears over the current the trade, the AUD could be set for a tough few months.

Whilst investors continue to limit the amount of sterling they are adding to their portfolios until a final outcome on Brexit is reached, the AUD may inadvertently find enough support to curb any further heavy losses in the short-term. However, any breakthrough in talks between the UK & EU, coupled with a further slowdown in global trade is likely to have a negative impact on the AUD’s value.


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