Brexit uncertainty affects the pound but a low interest rate could harm the Australian dollar

AUD Rate Tumbles as Coronavirus Deaths and Infections Climb

With GBPAUD exchange rates trading either side of 1.80 during the last fortnight, the one aspect that appears to be keeping sterling from making real gains at the moment is the ongoing Brexit talks.

Brexit outlook continues to affect the Pound

At the moment the UK is at a stalemate with the European Union after the Chequers Brexit plan offered by Theresa May over a week ago was rejected, and as yet no suitable alternatives have been offered.

With the EU summit set to take place on October 18th, this event could provide crucial insight into the outlook for sterling exchange rates for the rest of the year.

Indeed, depending on how the talks go an emergency Brexit summit may take place in November, so heightened volatility towards the end of this month and in to November is likely.

The outlook for the Australian dollar

Turning the focus to what is happening down under, the Australian dollar may lose further value against a number of different currencies including the pound after the US Federal Reserve increased interest rates to 2.25% last week.

The RBA’s cash rate is now 0.75% lower than that offered by the US, which is the biggest disparity in over thirty years since the Australian dollar was first introduced.

With further interest rate hikes planned in the US the RBA has seemingly been left behind and this is why I think GBPAUD exchange rates could start to improve if we get past the next couple of stumbling blocks of Brexit.

Meanwhile, with the Australian dollar weakening against the US dollar, this could help to bolster the Australian economy as this will encourage more money coming in to the country and will help economic growth.

The last interest rate hike by the Reserve Bank of Australia was back in 2010, and at the moment there doesn’t appear to be any appetite in the short term for an interest rate hike.

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