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Aussie to Pound Rate Hits 7-Week High, on Brexit Extension

Market CommentaryAussie to Pound Rate Hits 7-Week High, on Brexit Extension
Aussie to Pound Rate Hits 7-Week High, on Brexit Extension
Australian Dollar to Pound Rate. Image credit: TheDigitalArtist.

The Australian dollar to pound interbank exchange rate has hit 0.5490 today, its highest since February 21st, or over 7 weeks.

By contrast, the Australian dollar was as low as 0.5330 on March 16th, so it's since risen by over +1.5 cents, or +3.0%.

If you're a Brit living in Australia and planning to return to Great Britain, or an Australian business owner buying British goods, this may be useful information for when you transfer money to the UK.

Let's look at which factors have lifted the Australian dollar versus the pound recently.

UK Get Brexit Extension to October 31st

A first factor why the Australian dollar to pound interbank exchange rate has hit this 7-week high is because UK has been granted a Brexit extension to October 31st.

Last week, following a 6-hour overnight meeting, Europe's 27 leaders agreed to let the UK stay in the EU for another 6 months, while the UK decides what form of Brexit it wants, according to RTE.ie.

In the short term, this is positive, because it gives the Conservative and Labour parties time to agree a Brexit deal, to pass through Parliament.

However, financial markets and economists are concerned that, with the extension, the UK could still crash out of the EU with a "No Deal" at the end of October.

In addition, there's the risk that the Conservative Party will attempt a leadership challenge against Prime Minister Theresa May, and replace her with a "No Deal" Brexit Prime Minister.

As a result, even though the UK remains in the EU for now, uncertainties remain for the UK's Brexit agreement, so this has helped lift the Australian dollar versus the pound.

RBA's Debelle Talks Down Odds of Interest Rate Cut

In addition, a further explanation why the Australian dollar has reached this 7-week high versus the pound is because the Reserve Bank of Australia Deputy Governor Guy Debelle has talked down the possibility of cutting interest rates Down Under.

Speaking last week at an American Chamber of Commerce lunch in Adelaide, Mr. Debelle highlighted that Australia's economic growth recently has been "decent" while "the labour market has been surprisingly strong”, reports The Australian Financial Review.

Moreover, while the RBA Deputy Governor recognised that house prices in major Australian cities have fallen recently, this has so far happened "in a reasonably orderly way."

Given this, Mr. Debelle talked down the possibility that Australia's central bank will cut interest rates, below their current 1.5%.

In turn, this helps reassure financial markets that they'll continue to get a good return for buying Australian assets, thus supporting the value of the Australian dollar versus the pound.

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email peter.lavelle@purefx.co.uk.

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