Growing Threat of AU Damage from Trade War Fails to Prevent AUD/GBP Advance
The Australian Dollar has firmed against the Pound recently, although the AUD remains at risk of a sudden decline based on trading developments.
The latest headline news has been that the US has implemented trading tariffs against China, in a bid to reduce the vast deficit between the two nations.
This action has been met with alarm by economists in the US, China and Australia; AU analysts fear that the country could be caught in the crossfire.
Dr Shiro Armstrong of the Australian National University has warned that;
‘If China retaliates and things deteriorate, that is when Australia should be really worried about the health of the whole global trading system.
If Japan retaliates, if China retaliates, the whole thing starts to break down quickly’.
Pound to Australian Dollar Exchange Rate (GBP/AUD) Slides -0.3% on Brexit Transition Issues
The Pound to Australian Dollar (GBP/AUD) exchange rate has been disappointing of late, with Sterling seeing a moderate decline in the pairing.
This decline follows the news that EU leaders have approved a Brexit transitional deal between March 2019 and December 2020.
While the news has reassured UK businesses to some extent, the deal is still not set in stone because of at least two outstanding issues.
The first is the Irish border, where an arrangement needs to be made to prevent the return to a ‘hard border’ as was seen during the height of the Troubles conflict.
This was last left with the UK having to provide a solution to the problem, which has so far not been forthcoming.
The status of the British overseas territory of Gibraltar also needs to be decided on, although a last-minute change to the deal means that this can be resolved separately.
Australian Dollar to Pound Exchange Rate Forecast: Chance of AUD/GBP Advance on Slowing UK GDP
There will be little high-impact Australian economic data out over the coming week, so the AUD/GBP exchange rate could instead be influenced by UK GDP data.
Final figures for Q4 2017 are tipped to show a slowdown in quarter-on-quarter and year-on-year GDP growth, which could mean that the Pound declines in value.
In turn, this would raise the chances of an Australian Dollar to Pound exchange rate rise.
More broadly, the Australian Dollar could also be affected by any fluctuations in the value of the US Dollar (USD) over the coming week.
The USD has recently been devalued by news that trade tariffs will be imposed on imports from China, which risks sparking a prolonged economic conflict.
If a US-China trade war seems unavoidable, the US Dollar could plunge in value which might raise demand for the Australian Dollar and boost the AUD/GBP rate.