The pound to Australian dollar interbank exchange rate has reached 1.9514 today, its highest since the day after the UK’s Brexit referendum on June 24th 2016, or close to 42 months.
Partly, this is because the Conservative Party has won the UK’s general election with a clear majority. It’s thought that the UK can now finalise Brexit, and work on its domestic legislative priorities, like schools and hospitals. In turn, this might accelerate the UK’s GDP (Gross Domestic Product) growth in 2020.
Moreover, sterling’s gains versus the Australian dollar come in spite of the fact that Australia’s economic data this week was largely upbeat, while reports of a US/China trade deal might benefit Australia too.
Australia’s house price index increased by 2.4% in Q3, between July and September, according to the Australian Bureau of Statistics (ABS) this week. This was above forecasts for a 0.2% rise, as well as 0.7% fall in Q2, over April to June. This suggests that, in spite of recently rising unemployment and slow wage growth Down Under, there’s some momentum in the property market.
In addition, according to NAB’s business conditions survey for November, optimism reached 4 last month, above expectations for 2. This tells us that Australian firms feel more upbeat about the outlook than expected.
That said, it’s worth noting that Westpac’s consumer confidence fell to minus 1.9% this month, from November’s 4.5%, thereby dragging on the Australian dollar.
Meanwhile, reports this week that Washington and Beijing have reached an agreement to ratchet down their trade war could benefit Australia’s economy. Recently, US President Donald Trump tweeted: "Getting VERY close to a BIG DEAL with China. They want it, and so do we!"
If this turns out to be true, then Australia’s economy could accelerate, because businesses in the antipodean nation trade closely with both China and the USA.
In fact, so closely does Australia trade with China, that when China’s economy weakens, it’s often the Australian dollar that falls, as the closest developed world proxy. Following these reports, the Australian Stock Market has risen by 0.7%, and the Australian dollar may be affected too.
Looking to next week, key economic data which could influence the AUD include the Reserve Bank of Australia’s (RBA) meeting minutes on Tuesday, and Australia’s unemployment figures for November on Thursday.
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