The pound to Australian dollar interbank exchange rate stands at 1.9523 today. This is its highest in 42 months, or since June 24th 2016, the day after the UK’s referendum in favour of Brexit.
Sterling stands at this 42-month high versus the Aussie dollar today, because the Conservative Party’s unexpectedly large victory at the UK’s general election last Friday is supporting the UK’s economic and political outlook.
Prime Minister (PM) Boris Johnson’s Tories won 365 seats last week, with an overall Parliamentary majority of 79, compared to the main opposition Labour Party’s 203 MPs.
In theory, this large majority will enable PM Johnson to govern, without having to depend on small groups of MPs or alternative parties, as he’s done in the recent past. The markets hope that this will deliver a stable UK government for the next five years, thereby benefiting the pound.
Sterling Might Be Affected as UK Negotiates Future EU Trade Deal Next Year
However, while PM Johnson looks set to finally ratify the UK’s Brexit deal this week, which could accelerate the UK economy in 2020, Britain’s outlook for next year is not all smooth sailing.
The PM will soon begin to negotiate the UK’s future trade deal with the EU. According to the current timetable, the UK has until just 31st December 2020 to do this, when such trade deals typically take six or seven years.
This raises the prospect of the UK having to repeatedly ask for extensions, like we’ve seen with Brexit, or default to trading with the EU on World Trade Organisation (WTO) terms in just over a year. This uncertainty might impact the value of sterling, looking forward.
Australia’s Government Cuts Public Revenues Outlook for Next Four Years
Turning Down Under, the Australian dollar has lost today, following the Canberra central government’s mid-year budget review.
PM Scott Morrison’s administration has cut Australia’s GDP growth and wages outlook, and expects public revenues to fall by $44 billion up to 2023, compared to previous forecasts.
Diana Mousina, a Sydney-based economist at AMP, says that “We think that the pressure will remain on the government to provide more support for households as the weak consumer environment drags into 2020.”
These downbeat forecasts have weakened the antipodean currency today, and may influence its value, heading into next year.
For more information feel free to contact me directly using the form below.