GBP to AUD Outlook: Why Is the Australian Economy Reliant on China

GBP to AUD Outlook: Why Is the Australian Economy Reliant on China

Sterling has made significant gains against the Australian Dollar of late, GBP to AUD breaching 2.04 during yesterday’s trading.

The pound is not the destination of choice in global economic uncertainty. Investor’s will seek out safe haven currencies such as US Dollar or Swiss Franc. Although it will be interesting to see if US Dollar will retain it’s status as a safe haven now that the US is considered to be the epicentre of the virus. There has been huge stimulus promised, but the lack of a public health care system could be set to cause trouble.

Brexit Trade Talks

The pound is vulnerable due to our exports being far outweighed by our imports and the complete lack of clarity surround Brexit trade deals. Boris Johnson had pledged to get Brexit sorted by the end of the year, it seems it is highly likely there will now be an extension into 2021. One of the biggest threats to Sterling is a no deal scenario if Boris sticks to his guns and keeps the deadline for talks until the end of the year there is a high probability of a no deal. If an extension is announced this could ease investor concerns and boost the pound’s value.

Despite Sterlings fragile position the Australian Dollar seems to be fairing worse. The Australian Dollar is a riskier, commodity based currency and is not considered safe haven. Australia’s economy is also suffering due to its close ties with China. Australia is heavily reliant on China purchasing it’s good and services. If there is a fall in growth in China this tends to have a knock on effect on the Australian Dollar. Iron ore is Australia’s primary export and its price can be used as a barometer as to the health of the Australian Dollar. If you have a trade involving AUD it would be wise to keep an eye on its value.

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