This morning I awoke to bewildering news - Boris Johnson has reached a deal with the European Union over Brexit. I leapt out of bed like a modern-day economic Cinderella, birds tweeting, and my mind ticking at the prospect of a world where real decisions and progress is made over Brexit. Of course, the ugly stepsister, in the form of a news article, had to come and break this glorious haze. Reminding me that, of course, the British Parliament still has to pass the deal.
Regardless of this errant detail, this news is a great way to start a Friday. The developments have, unfortunately, boosted the value of the pound against the Aussie dollar. However, the otherwise positive news has lifted risk sentiment in markets and given the AUD a lift against both the USD and JPY. With this in mind, today one AUD will buy you:
If you exchanged $2000AUD for USD today compared to last Friday, you would be taking off to the states with a bonus $16USD. That might not sound like much, but $16USD might be a few day’s worth of subway rides in New York or another seven hamburgers from In-N-Out.
Likewise, if you exchange $2000AUD for JPY today compared to last Friday, you could splurge on an extra 3924.40JPY worth of sashimi.
So, how can you avoid missing out on bonuses like this? By adding Rate Move Guarantee to your purchase in-store of course. It’s free, and if the rate improves within 14 days of purchase, we will refund you the difference*.
What’s happening in foreign currency markets?
So, as I mentioned above, Boris Johnson has done the impossible and got the European Union to agree to a brand, spanking new Brexit agreement unanimously. This caused a spike in the value of the pound against most major currencies.
Whether this optimism continues is another story altogether. Tomorrow the UK parliament is holding a special sitting to vote on the deal. Johnson requires 318 votes for the deal to pass, and is expected to offer a package of plans to win votes including ‘social protection’, ‘environmental standards’ and ‘workers rights’.
Johnson is already starting on the back foot though, as the Northern Irish Democratic Unionist party has said they won’t support his deal due to it including custom checks between Northern Ireland and the rest of the UK. UK betting agency ‘Sporting Index’ is predicting Johnson will lose by seven votes.
The EU has said there wouldn’t be an extension to the current October 31 deadline; however, if the deal isn’t passed this weekend, it’s likely an extension could be granted. This will especially be the case if the prospect of another referendum gains momentum.
As the decision is happening over the weekend, financial markets will not react until trade resumes on Monday. If the deal is approved, it is likely the pound will increase in value even more. So, if you plan on purchasing GBP soon, it’s worth monitoring this decision and potentially capitalising on the weekend’s lack of trade to ensure you’re not stuck purchasing when the AUD is even lower against the pound.
US-China trade talks
The latest round of trade talks ended last week in Washington, and things are looking promising. The US suspending the tariff increase on Chinese goods that were planned for this Tuesday, and there is talk of a ‘phase one deal’. This deal is expected to be written over the next three weeks. It will address intellectual property and financial services concerns in addition to the Chinese purchase of $40-$50billion worth of US agricultural products.
Trump seems pleased with this and has mentioned that China has agreed to this. Chinese negotiators have not yet confirmed this is the case though. Both sides remain in contact, with the next stage of talks being discussed.
US data and tension in Turkey
Unlike the GBP, the USD has seen weakness off the back of weaker than expected domestic data and geopolitical developments in Turkey. September housing stats were below expectations, and industrial production has fallen.
Furthermore, Turkey has agreed to a ceasefire on the Turkish-Syrian border, which could be extended if Kurdish soldiers leave the area. Trump is pleased with the ceasefire; however, tensions are still high in the area.
Positive domestic news
After months of seeing the unemployment rate increase, yesterday markets were relieved to see an unexpected 0.1% decline in the rate for September to 5.2%. This has lowered expectations of another interest rate cut next month.
The culmination of these factors is an excellent example of market forces working in favour of the Australian dollar. The AUD is considered a ‘risky’ investment that thrives in a risk-on market environment. The fact that both Brexit and the US/China trade war have seen positive developments have boosted market confidence, thus contributing to a ‘risk-on’ mood. When this is considered in conjunction with the weaker USD data and positive domestic Aussie news, markets are more willing to go after risky investments, a.k.a the AUD. Safe haven currencies that thrive in the opposite environment to the AUD, like the JPY and USD, have seen downward pressure as a result; hence, the significant jump compared to this time last week.
As we look forward to the weekend, today’s release of China’s GDP data for Q3 will be the primary driver of the Aussie dollar’s value. This is, of course, before British MP’s meet tomorrow and vote on the Brexit deal.
In the meantime, I vote we bask in the positive ambience that has come as a result of today’s news and worry about tomorrow when it happens.
Cheers to Friday and cheers to Brexit.
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