The British pound (GBP) is higher against the Australian dollar (AUD) on Wednesday.
The feud between the United States and China over the latter’s crackdown on Hong Kong independence is at risk of spiraling into a second chapter in the trade war and the Australian dollar is starting to wobble. The pound has its own risks ahead of another round of post-Brexit trade talks next week.
GBP/AUD was up by 16 pips (+0.10%) to 1.8555 as of 4pm GMT.
The currency pair chopped in a sideways range with 1.855 as a midpoint, hovering close to 7-month lows. Yesterday the exchange rate fell -0.45% and week-to-date it is down by -0.39%.
GBP: Still no plans to extend
With one month to go until the deadline in which the UK must apply for an extension to transition period, the UK again said today it has no plans to do so. In addition the UK’s chief negotiator David Frost said the EU will need to ‘evolve its position to reach an agreement’ with the UK. Neither side is budging before another round of talks next week, which look set up for another stalemate.
Brexit troubles meant the pound was unable to really capitalise on a bright outlook that saw stock market gains in Europe and the price of gold, a preferred haven fall below $1700 per oz.
AUD: ‘Responses’ to China over Hong Kong
Rising US-China tensions started to reverberate in currency markets on Wednesday. Late on Tuesday US President Trump said he would announce a ‘very interesting’ response to China’s actions in Hong Kong. The European Union was also reportedly weighing a ‘robust’ message to China over Hong Kong issue. A strongly-worded letter probably isn’t going to do the trick so one would assume there will be some economic action directed against China.
While the Australian dollar pulled back, all the attention in markets was on the 3000 price level and the 200-day moving average in the S&P 500, the US shares benchmark. The two asset classes have been closely correlated of late and any divergence is something to keep an eye on.
