Australian Dollar Could Wilt If Brexit Delayed, Growth Risks Hang

AUDUSD 2-Hour Price Chart

AUSTRALIAN DOLLAR FUNDAMENTAL FORECAST: NEUTRAL

  • The Australian Dollar rose on Brexit deal expectations, local jobs data
  • If UK PM Boris Johnson fails to pass his deal at home, AUD may fall
  • Global growth slowdown could undermine near-term AUD/USD gains

AUSTRALIAN DOLLAR RECAP

The Australian Dollar spent most of last week rallying against major currencies such as the US Dollar and Japanese Yen but underperformed against the British Pound. Domestically, it could thank a drop in Australian unemployment which almost entirely took off bets of a November RBA rate cut. Meanwhile, hopes of a Brexit deal propelled equities, supporting the sentiment-linked AUD as GBP rose.

AUSTRALIAN DOLLAR WEEK AHEAD

Looking to the upcoming week, there isn’t much for AUD/USDAUD/JPY and GBP/AUD to look forward to on the domestic front. We will get Commonwealth Bank of Australia (CBA) measurements of manufacturing and services PMI, but these may do little to significantly calculate current estimates of near-term easing from Australia’s central bank.

BREXIT DEAL OR EXTENSION?

Rather, the focus will likely be on the external front, particularly at Monday’s market open. That is because over the weekend, the UK House of Commons will be voting on Boris Johnson’s Brexit agreement. Last week, a deal was reached between the United Kingdom and the European Union. Now, it heads to Parliament to see if the Prime Minister can gather enough votes to seal the deal.

This will be a daunting task. Mr Johnson and his government are over 40 seats short of a majority. This means that he will be relying on support from the Democratic Unionist Party (DUP) in order to get enough votes. Last week, the DUP made it well known that they would not support his Brexit deal. If Mr Johnson fails to get enough votes, he will most likely be forced to ask for an extension of the Brexit deadline.

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