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11th December 2018
Overnight saw the AUD weaken against the USD, falling from 0.7225 to 0.7180. This came as a result of a risk averse mood in the global market that encouraged investors to move their money away from the UK and into safe haven currencies, such as the USD and JPY.
What caused investors to doubt the UK and GBP? Brexit, of course!
Today, British MPs were supposed to vote on the current Brexit deal. However, after expectations that the deal would have 187 votes against 419, UK Prime Minister Theresa May has delayed the vote to avoid the almost certain defeat. To put the number into perspective, the deal needs 320 votes to pass.
So, where does this leave the UK? Not in a great position if we are being honest.
There is no majority within the UK’s political factions that are in favour of any course of action. To recap, the potential options are:
- A no deal. This would see the United Kingdom leaving the EU with nothing but their dreams, some debt and a good cup of tea. Definitely no trade deals, border negotiations or things that are quite important for the wellbeing of the UK’s economy and best interests of the citizens.
- Joining the European Free Tree association. Once again, there is no real majority in favour of this.
- A people’s vote on a Brexit agreement.
- A second referendum to see if UK citizens are still in favour of leaving the EU. While some of the population could vote differently in a second referendum, obviously a second referendum undermines the original referendum at a considerable cost to the UK’s economy. According to a written statement to Parliament from March 2016, the estimated cost of conducting the original referendum was a whopping £142.4m. Imagine paying that bill again.
Most citizens and politicians alike are against a no deal, but also have no alternative as to what a deal should look like. It has been confirmed that the UK can decide not to leave the EU if they wish, however the EU has made it clear that they will not renegotiate the withdrawal agreement. Crikey.
The lack of support for any of the options has resulted in the odds of a no deal rising exponentially. It is also highly likely that the March 29 Brexit deadline will be extended.
If you haven’t already guessed, the UK government is in disarray at the moment. Or, as my dad would say, they are running around like a bunch of headless chooks. The prospect of a general election is becoming more likely, especially amidst calls for May to resign. If that’s the case, who would take her place, and would she ever get the chance to work in ye old London town again?
This growing mass of uncertainty has reflected on the pound’s performance, pushing it down lower against most major currencies.
If you’re travelling to the UK soon, it's definitely worth keeping a close eye on Brexit news to see how they are affecting the GBP. Maybe also take them some tea, everyone sounds really stressed over there.
What’s happening in the rest of the world?
US/China trade war
No surprises here, but there is continued anxiety over the uncertainty surrounding the US/China trade war.
This week China released some weaker international trade and inflation data compared to previous months, which did not have a positive effect on the AUD.
Europe
Protests against the austere measures of the French Government have spread to Belgium over the weekend.
Known as the ‘yellow vest protests’, what originally started as anger over rising fuel taxes has snowballed into a wider movement against French President, Emmanuel Macron’s policies and governing style.
Protests are currently not having a major effect on the value of the euro against the AUD, however, it is definitely worth keeping on your radar if you are planning a white Christmas in France.
New Zealand
Kiwi locals and sheep alike are currently celebrating at the NZD’s 17 month highs against the AUD. Whilst this isn’t great news for Aussies travelling across the ditch over the holiday period, if you have recently returned from a NZ holiday now is the perfect time to sell back any leftover Kiwi cash.
Sheesh, there’s a lot going on in global markets. It pays to stay up to date with what’s going on in the global economy as it has a major impact on how the AUD performs. This kind of knowledge is particularly handy if you are heading overseas soon.
We get it though, with only 14 sleeps till Christmas you have too much on your mind to be worrying about what currencies are doing. Sign up for rate alerts, and we will let you know when a currency hits your preferred rate.
Don’t forget to add Rate Guard to your transactions in store as well! It’s free, and if the rate changes within 14 days of purchase (aka between now and Santa) we will refund you the difference. Now that’s a nice little bonus in your Christmas stocking.
Definitions for those of us playing at home:
Risk Sentiment (Risk-averse mood)
This refers to changes in investment activity based on the level of risk tolerance in the market. If the risk is perceived to be low (risk-on) the theory states that investors are more willing to engage in higher-risk investments. Likewise, when the risk is perceived to be high (risk-off), investors will seek lower-risk investments.
Safe haven currencies:
Safe haven investments and currencies are expected to retain their value during times of market turbulence, generally increasing in value during a risk averse mood. Investors seek out these currencies to limit losses in the event of a market downturn.
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