Currency exchange is highly volatile. One factor that goes into calculating currency value is marketplace stability. As the UK goes through with plans to leave the EU, the Pound to Australian Dollar exchange rate is expected to see a lot of changes as well.
Affects after Brexit Referendum
The most dramatic result from UK’s Brexit decision was seen immediately after results from the referendum were announced. Many political analysts and economists expected the vote to go the other way and for the UK to remain as a part of the EU. Because the referendum gave an unexpected “leave” result, the GBP plunged into uncertainty.
Immediately after the June 23rd, 2016 vote, the GBP to AUD exchange rate fell from 1.97108 down to 1.82806 by closing on June 25th. It continued to fall, with some short peaks and valleys, until reaching a low point of 1.59158 on October 26th, 2016.
From that low point onwards, the GBP to AUD rate experienced instability for a number of months. It started going up and reached above 1.71 in January before crashing back down below 1.61 later that month. The instability continued until the UK government activated Article 50 in 2017.
Affects from Activating Article 50
Leading up to the activation of Article 50 on March 29th, 2017, Pound to Australian Dollar rates remained low. The day of the activation was a low end for the Pound Sterling at 1.62324. However, it began increasing rapidly over the next month, despite political turmoil and uncertainty. By May 11th, 2017, GBP to AUD was at 1.75734.
Early hiccups in Brexit negotiations, constant government changes, and increased uncertainty in light of the Article 50 activation did lead to a few months of falling rates June to September of 2017. But, as of September 5th, 2017, the rates have mostly been on the rise with normal variations.
Uncertainty Over Brexit Deal
The exchange rate is hovering around 1.81 in late September, 2018. This represents an increase from 2017, but it’s not necessarily a stable position. There are many hurdles left to come in Brexit negotiations. Although the rate is stable now, it could change quickly as soon as new information is introduced to the ongoing Brexit situation.
Uncertainty is the biggest factor affecting the GBP to AUD rate currently. Rates have not been able to climb back to their pre-Brexit highs because there is less confidence in the UK market during this transition. Until negotiations are completed and the final Brexit deal is ratified, it’s unlikely that the exchange rates will see any consistent improvement.
Potential Outcome for Brexit Negotiations
As of September 2018, there appear to be two potential outcomes for Brexit negotiations. It may end with no deal or with the implementation of the Chequers Plan. Both plans would affect exchange rates differently, but failure to secure a Brexit deal would have far worse consequences for the Pound.
Theresa May and members of the cabinet spent a long period of time negotiating terms for a Brexit deal that focused on compromise to remain part of specific EU marketplaces. The Chequers Plan would keep the UK in strategic markets, create a new free trade zone between the UK and the EU, allow a longer period of time for adjustment, and would govern trade between the UK and the EU with a so-called “common rulebook”. Many other provisions are included in the full Chequers Plan. This deal has been referred to as a soft exit from the EU.
The other option on the table is that no deal will be secured and the UK will make a hard exit from the EU instead. Come March 29th, 2019, if there is no deal secured, the UK will exit the EU and immediately sever all connections to the free market and every regulatory authority from the EU.
What Does a “No Deal” Mean for GBP to AUD?
The immediate impact of no deal would likely be negative for the Pound. Rates for purchasing AUD would likely fall dramatically with an uncertain future. There is high uncertainty over how the UK and other world markets would respond to a “no deal” agreement, which would likely lead the Pound to lose a lot of value overnight.
The effects of failing to secure a deal could be seen as early as October or November of 2018. These months mark the final times a deal would be agreed and still be able to be ratified by all relevant parties within the EU before the March 29th, 2019 Brexit deadline. If no deal is secured during these meetings, it’s likely that there will not be a deal for the UK. The GBP may see some reduction if this is the case, but it’s more likely to see a greater reduction closer to March 29th if there is no deal.
Political Uncertainty Affecting Exchange Rates
Movement of political figures in and out of prominent positions throughout the Brexit negotiations, as well as dissatisfaction with Theresa May’s negotiations thus far, has led to an unstable market for the GBP. Exchange rates are consistently changing with every update to the cabinet, Brexit negotiations team, and otherwise.
It’s unclear what the result of the Brexit negotiations will be. Until the final decisions are made, the GBP to AUD exchange rate is likely to fluctuate greatly. Some downturn is to be expected around large announcements, although it could pick up again as time goes by, as it has continually throughout the process.