The prospect of the FED hiking interest rates next week has strengthened the Pound’s position against the Australian Dollar, testing ranges of 1.71, not witnessed since early September. The timing could not be better for Sterling exchange rates, but the opportunity may not be available for long.
The weakness in AUD is linked closely to the FED’s expectations for a rate hike, which markets are predicting as early as next week. With the interest rate set to rise in the US, edging closer to rates witnessed with some of the commodity currencies such as AUD and NZD, the US Dollar suddenly becomes more attractive for investment. There’s no doubt that the US Dollar is a safer currency than the Australian Dollar, which tends to rise and fall based on external factors such as copper prices or the Chinese economy. The US Dollar on the other hand, is not subject to heavy market fluctuations under normal conditions.
How long can Pound to Australian Dollar exchange rates continue upwards? This depends a lot on the outcome of the Supreme Court ruling which begun yesterday, with Theresa May set to overrule the decision for parliamentary consent over Brexit terms.
The consensus so far is that she will not regain the right to trigger Article 50 alone, which could deal heavy blows for her March deadline and delaying Brexit indefinitely. Part due by parliament’s unwillingness for a hard Brexit and pro-EU stance, the Prime Minister must outline a strategy that will protect the UK’s interests whilst fulfilling the needs of the 52%, to do both looks contradictory in nature.
If Theresa May does win the right to trigger Article 50 in March, Pound weakness could follow early next year against the Australian Dollar, even if the FED act in raising interest rates, Brexit is a much bigger concern for markets.
But as it stands, the prospect of a hard Brexit looks unlikely, the FED raising interest rates in December looks likely, the combination of both outcomes could strengthen the GBP/AUD position.
Pound to Australian exchange rates could pass through 1.75 if Brexit is delayed and the FED raise interest rates next week.