GBP/AUD: Aussie Rallies as Pound Hits Brexit Brakes

The British pound was lower against the Australian dollar on Thursday as the Aussie recovered from multi-year lows while coronavirus scrutiny turned on the United States. Sterling was mostly lower on renewed fears the UK might end up without an EU trade deal by the end of the year.

GBP/AUD was down by 114 pips (-0.59%) to 1.9592 with a daily price range of 1.955 to 1.975 as of 3pm GMT. Having failed to confirm a breakout to multi-year highs, the currency pair has dropped over 100 pips back to weekly lows. The day’s losses unwind previous gains to leave the exchange rate just +0.11% on the week.

GBP down amid UK-EU trade negotiations

The UK released its own negotiating mandate on Thursday, which contained several statements setting out its priorities for the forthcoming EU trade talks. The pound fell when it was made clear that the UK could walk away were no progress on a comprehensive deal made by June, the deadline for extending the talks beyond the end of the year.

The pound had been pushing higher this week as a place to hide from coronavirus uncertainty, but the latest news on the future UK/EU trading relationship has pulled it back down again. The UK government is aiming to make it clear both to the European Union and the UK public that is does not plan on extending the transition period beyond December 2020. Prime Minister Boris Johnson cannot be seen to be delaying Brexit any longer but restricting trade negotiations to just 10 months reduces the chance of achieving a comprehensive trade deal.

A fall in the dollar index which allowed the Aussie to pull off decade lows explained most of the currency’s strength as opposed to domestic factors in Australia. Australian PM Morrison was not a source for currency gains in statements made on Thursday. Morrison said the coronavirus is “likely a pandemic” but countered that Australia would not introduce a ‘broader larger’ fiscal stimulus to fight it. A coronavirus pandemic without increased government spending improves the chance the Reserve Bank of Australia (RBA) lowers rates.

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