GBP/AUD Exchange Rate Steadies on Renewed US Dollar Caution

The Pound Australian Dollar (GBP/AUD) exchange rate remained within a narrow band on Thursday morning, limited by fresh concerns for the US Dollar (USD) but supported by growing optimism for a post-Brexit UK-US trade deal.

The Pound’s performance was buoyed by new remarks from US Treasury Secretary Steven Mnuchin at the World Economic Forum in Davos, Switzerland, with Mnuchin stating that the UK will be ‘at the front of the line’ when it comes to negotiating a free-trade agreement with the US.

Mnuchin also asserted that US President Donald Trump himself was very clear that the UK would have priority, and that the White House is very supportive of the UK over the Brexit issue.

‘We are monitoring discussions with the European Union and we want to see a successful transition. There will be certain restrictions to deal with, but as soon as the UK is ready, then we would be prepared to negotiate an attractive trade deal’, Mnuchin stated.

These comments contradicted Barack Obama’s past warnings that the UK would be ‘at the back of the queue’ for a trade deal if it voted to leave the EU, whilst also renewing some confidence in the UK’s prospects post-Brexit.

Market optimism for the Pound has steadily grown along these terms in recent weeks, with former UK Treasury Minister and Economist Lord Jim O’Neil claiming that any Brexit related negativity will likely be ‘dwarfed’ by the impact of positive developments in the global economy and UK Brexit Secretary David Davis also taking an upbeat stance on Brexit’s economic implications.

Whether this optimism will persist, however, remains to be seen.

AUD Exchange Rates Capitalise on a Weaker US Dollar (USD)

The ‘Aussie’ Dollar doesn’t tend to dilly dally when its US counterpart is down in the dumps, and today has been no different.

Ongoing weakness for the US Dollar resumed this week on the back of two core events; comments from US officials welcoming the depreciation of the US Dollar and the White House’s implementation of tariffs on foreign washing machines and solar panels.

In respect to the former, Steven Mnuchin was responsible, stating in a speech at Davos that he welcomed a weaker US Dollar as it could grant better trade opportunities.

These comments only seemed to attract further depreciation, however.

In respect to the latter, the White House implementation of various tariffs prompted some concern amongst markets, with various analysts positing that an increasingly protectionist stance in the US might prompt a trade war.

Commerce Secretary Wilbur Ross did argue against this analysis, however, telling reporters that a ‘Trade war has been in place for quite a little while, the difference is the US troops are now coming to the ramparts’.

Markets were decidedly unconvinced, however, skittish at the possibility of change and uncertainty as trade boundaries shift.

GBP/AUD Exchange Rate Forecast: Iron Ore Supply Glut Threatens Long-term AUD Prospects

Australia’s number 1 export, iron ore, took a few hits this week, tumbling on Tuesday and meandering down into Thursday as markets responded to soft demand and another notable increase in Chinese iron ore port inventories.

Looking ahead, China’s plans to cut soaring levels of pollution in some of its regions has also been deemed a massive threat to iron ore prices, with analysts at ANZ Bank suggesting that this has resulted in steel mills curbing their output.

One spokesperson stated:

‘Iron ore demand is really weak as steel mills are curbing output. Futures prices in China failed to gain any traction as traders failed to follow through with purchases following the strong close last week’.

With iron ore supplies continuing to rise, demand decreasing and oversupply becoming a genuine issue, the forecast for the commodity seems increasingly gloomy.

Beyond this, an extended fall in iron ore prices could give the Pound the opportunity it needs to resume its rally against the Australian Dollar.