GBP/AUD is bullish on Thursday, aiming to update the weekly peak reached on Monday. Currently, the pair is trading at 1.9334, up 0.30% as of 6:40 AM UTC.
The markets are discussing the Bank of England’s (BoE) potential rate cut later today and the latest Brexit developments. The BoE’s Monetary Policy Committee (MPC) will announce the interest rate in a few hours, which will likely cause more volatility. Investors are pricing in a 45% chance that the central bank will cut the rate to 0.50% from 0.75%.
Bank of America economist Robert Wood, who expects a quarter-point cut, said in a note to clients:
“Whether they cut or not is finely balanced, but recent BoE speeches suggest urgency.”
Yesterday, after three long years of struggles, the European Parliament finally put an end to Brexit uncertainty by voting to leave the UK to continue on its own. Britain is set to leave the European Union (EU) tomorrow.
However, the most difficult part only begins, as the two sides have to reach a complex trade agreement in only 11 months, after UK Prime Minister Boris Johnson ruled out any attempt to extend the Brexit transition date beyond December 2020.
Earlier this month, European Commission President Ursula von der Leyen warned that the UK’s access to the single market directly depends on its readiness to comply with the bloc’s rules. On the other side, Brexit supporters want to be free from European standards and restrictions.
Elsewhere, the Aussie continues to be under pressure amid the outbreak of a coronavirus in China, which started in the city of Wuhan. The death toll as of Thursday increased to 170 victims. The virus is now present in every region of mainland China, with authorities confirming over 7,000 cases. Australia is concerned that the situation might negatively impact its economy. Hayden Dimes, a market economist at ANZ, commented:
“The most direct impact on the Australian economy will be fewer international visitors from China. This will be material, as China now accounts for almost 16% of international visitors and 27% of total visitor expenditure.”
He expects the Reserve Bank of Australia (RBA) to continue with its easing measures and cut the interest rate, especially when the country has been struggling with one of the worst fire seasons in its history.
“We think if the situation worsens materially, it would be appropriate for fiscal support, given only moderate growth and a cash rate that is already close to the effective lower bound,” Dimes said.
