Australian Dollar Pound 2016 Exchange Rate Edges Higher on Modest Risk-Rally
Despite various factors weighing on the Australian Dollar this week, the Australian Dollar Pound 2016 exchange rate was able to advance slightly on Wednesday thanks to a limited risk-on movement and weak GBP trade. Its gains were tight however and AUD GBP remained in the region of 0.58.
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Australian Dollar (AUD) Bolstered by Risk Rally and Iron Ore Prices
After performing poorly for most of last week, demand for iron ore finally improved this week after Chinese iron ore inventories slipped slightly.
Chinese iron ore prices jumped almost 4% on Wednesday as traders began to look for bargains in the commodity as well as steel futures. This gave the iron ore-correlated Australian Dollar a slight boost.
The US Dollar also slipped slightly this week and investors took the opportunity to buy up risk-correlated currencies again in one last 2016 risk-rally.
However, this was not enough to support the Australian Dollar considerably, as concerns about US-Australian trade under Donald Trump’s Presidency as well as the possibility of even lower Australian interest rates from the Reserve Bank of Australia (RBA) weighed on AUD demand.
Pound (GBP) Held Back by Ongoing Hard Brexit Concerns
Demand for the Pound has been low since last week’s session, which saw news emerge that any potential post-Brexit UK-EU trade deal could be vetoed by any member state of the European Union.
This, as well as some comments from the UK government playing down the possibility of paying for single market access for the long-term, revived fears that the UK government was ultimately headed for a hard Brexit.
This week’s UK house loans results from the BBA were unable to inspire much movement in GBP exchange rates. Instead, Brexit concerns continued to be the focus point and this kept Sterling weak.
As concerns rise about the UK government’s lack of a clear and coherent Brexit position, an increasing amount of analysts predict another poor year ahead for the Pound which has led to some pre-2017 GBP selloffs.
Australian Dollar Pound 2016 Exchange Rate Forecast to Drop in Early 2017
Even if prices of iron ore remain solid in the coming week and beyond, the Australian Dollar is likely to be vulnerable heading into 2017 as foreign exchange markets refocus on the US economic outlook once again.
With President-elect Donald Trump’s inauguration due in late January and the Federal Reserve expected to hike US interest rates as many as three times in the coming year, 2017 risk factors are decidedly down.
This means risk-rallies like the one seen this week could become rarer and risk-correlated currencies like the Australian Dollar could see longer-periods of weakness as investors look to protect their assets from volatile trade conditions.
AUD GBP could be increasingly volatile going forward, especially if the Pound also remains weak on short to long-term Brexit concerns.
With the UK government expected to activate Article 50 and begin the Brexit process by the end of March, the clock is ticking and unless post-Brexit single market access looks likely to investors GBP is unlikely to have a bullish Q1 either.
AUD GBP Interbank Rates
At the time of writing, the Australian Dollar Pound 2016 exchange rate trended in the region of 0.58, while the Pound Australian Dollar exchange rate traded at around 1.70.