- Watching Reserve Bank of Australia (RBA) rhetoric
- Australian banking industry set for major changes
- Brexit may have to be delayed, Foreign Secretary admits
January has been a month of ups and downs between GBPAUD, with no net gain throughout January. Typical Interbank rates began and ended around 1.802. In between, they reached a low of 1.765 on 11 January on poor manufacturing and trade deficit news, plus concerns over the outcome of the Plan B Brexit vote the following week and a high on 1.850 on 25 January, as it looked more likely that Theresa May’s Brexit deal would be approved by MPs and Australian banks increased variable mortgage rates, adding to fears of a cut in interest rates. Running into February, the Pound edged closer to 1.81.
Watching Reserve Bank of Australia (RBA) rhetoric
Once again, there was no change to the Official Cash Rate, which has remained at 1.5% since August 2016. Markets were watching rhetoric from Governor Philip Lowe closely for signs of caution and any trepidation about ongoing economic and monetary policy. Some commentators suggest that the dovish tone the bank has already struck, along with slowing growth and investment, will eventually lead to a cut in rates rather than a rise.
Retail sales figures proved disappointing, but the Australian Dollar managed to gather some ground after its initial fall, once it became clear that the Aussie central bank’s speech was not as dovish as markets had expected. Keeping interest rates at the current 1.50% is viewed as positive by the markets, overall. Now it seems that a rate hike may not be as farfetched as was initially thought, however, it could take some time... The RBA cited global trade tensions and increasing market risks in its speech and these are all concerns that can weigh on economic performance and AUD strength.
Australian banking industry set for major changes
The banking sector in Australia is set to undergo major changes following a scathing misconduct review by the Royal Commission. Australia's High Court justice and royal commissioner, Kenneth Hayne, made 76 recommendations in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry report
to update key aspects of the sector. It referred two dozen cases to regulators for possible legal action. The recommendations follow a public inquiry that heard fees were charged to the accounts of deceased clients and that bribes were paid to win mortgage business. The recommendations include banning trailing commissions for mortgage brokers and forcing financial planners to disclose fees for selling products.
The Australian government says it will act on all the measures. The Australian Banking Association’s Chief Executive Officer, Anna Bligh, says the commission has put the entire industry under the microscope “and its final report lays bare how banks have too often failed their customers and let down the Australian people. Banks understand that these failures have caused deep hurt, suffering and heartache for far too many customers and they are sorry for the pain that they have caused. Importantly, banks accept full responsibility for these failings and they know that they must now change to ensure that this never happens again. Banks are determined to learn the lessons, to fix the problems and to make it right.”
Brexit may have to be delayed, Foreign Secretary admits
The Brexit deadline could be extended to give the UK more time to reach agreement with the European Union. The suggestion comes from no less than Foreign Secretary, Jeremy Hunt. As it could be some time before an acceptable solution is found to the Irish backstop impasse, a delay could be required, he told the Today
news programme. “I think it is true that if we ended up approving a deal in the days before the 29th March, then we might need some extra time to pass critical legislation. But if we are able to make progress sooner then, that might not be necessary.” The comments come after the vote on a series of Brexit amendments by MPs, who made it clear that they want a deal agreed before leaving the European Union and “alternative arrangements” to the Irish backstop. However, they pulled back from making a binding agreement to delay Brexit, as the vote in late January was only advisory.
Following the votes on a series of Brexit amendments, European Union leaders have stood firm, saying that no renegotiation over the backstop will be possible. UK businesses are concerned that the ongoing uncertainty and delays, with reports that almost one in three businesses have moved operations from the UK or are thinking of doing so. So says an Institute of Directors (IoD) survey. It reports that 29% of firms among 1,200 members believed Brexit posed a significant risk to their operations in the UK and had either moved part of their businesses abroad already or are planning to do so. IoD’s interim director general, Edwin Morgan, says, “We can no more ignore the real consequences of delay and confusion than business leaders can ignore the hard choices that they face in protecting their companies. Change is a necessary and often positive part of doing business, but the unavoidable disruption and increased trade barriers that no deal would bring are entirely unproductive.”
Carolyn Fairbairn, Director General of the Confederation of British Industry (CBI) called the House of Commons votes another deeply frustrating day for British business. “The never-ending parliamentary process limps on while the economic impact of no deal planning accelerates. The Brady amendment feels like a throw-of-the-dice. It won’t be worth the paper it is written on if it cannot be negotiated with the EU. Any renegotiation must happen quickly – succeed or fail fast.” Adam Marshall, Director General of the British Chambers of Commerce, agreed, saying, “Government and parliament are still going round in circles when businesses and the public urgently need answers.” These may come over the next month. If no new deal is reached by Thursday 14th
February – Valentine’s Day – MPs will get the further Meaningful Vote that Theresa May has promised. Should that not happen, then on there will be another vote on Thursday 14th
March. However, even though MPs say they want a deal, if none can be reached the default position is that Britain will leave the European Union on 29th
March without agreement.
What next for GBPAUD?
It’s been an interesting month from a technical perspective, opening and closing the month at the same rate – this is the third time in the last five months that this has happened. Overall, GBPAUD remains in a shallow uptrend; the bottom of which comes in at around the 1.71 level.
There was a nice cent range during the month between the low and the high. The rate has turned bearish again with some better news for the Australian economy, trading back below the 20 day moving average and currently moving back down towards the recent 1.76 low.
With lack of progress on Brexit, the threat of no deal is very much back on the table, so the potential for further downside exists.
Currently, uptrend support comes in at 1.7850 and it may bounce off there for a retest of the recent highs.
Guidance for AUD buyers
For AUD buyers, I would suggest that putting orders in to the market at 1.80-1.84, depending on your risk appetite, would be a sensible move.
Guidance for AUD sellers
Likewise, AUD sellers could trade a portion at this level, with view to selling more on a break below 1.7850.
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