Currency traders are putting their bets on “Bremain” as the Australian and New Zealand dollar remain strong. Investors have clearly predicted the outcome of the vote of the United Kingdom to leave or to stay in the European Union.
The relative effects of the decision of Britain are on the table of the market players and market stability will be on the watch right after. Different outlooks and/or speculations were raised before the announcement, however, nothing is certain until the result comes out.
A senior market analysts indicated that the atmosphere is akin to the moments before a western shootout. “We know trouble is brewing yet there is a relative calmness before trouble erupts. The polls will no doubt dictate the direction, trajectory and volatility of most asset classes tomorrow,” he said.
Meanwhile, the kiwi and the Aussie traded higher, sending a firm sign that the investors see the ease of Brexit fears. New Zealand government bonds as well as Australian bonds eased slightly at the start of the trading session.
Currency strategist in Australia believed that the Aussie may slip a little, but it is not subject to long-term decline as long as the market recognizes the significant effect of the Brexit in the global economy. On the other hand, RBA Governor Glenn Stevens acknowledged the increase of the pound’s exchange-rate volatility caused by the uncertainty of the referendum’s outcome.
A representative of the Commonwealth Bank informed the press that by 1pm tomorrow they expect to have three-quarters of the regions counted, so they should know the result by then. Further, he said that if they’ve got three-quarters of the vote, they should know what the answer’s going to be, unless it’s neck and neck.
Australia and EU Trade Relationship
David McCredie, chief executive of Australian British Chamber of Commerce, explained that if Britain leaves the EU, it needs to negotiate its trade and political links with the twenty seven members of the union, the United States including the Australia.
Prior to the Brexit, Australia and the European Union have started discussing a free trade agreement. The deal would be impossible to happen and Australia must make another transaction with the United Kingdom if Brexit persists.
“In the event of a Brexit, an Australian government of either flavour will get on with the sound and close bilateral relationship with London and the improved broad-based relationship with Brussels,” said Annmarie Elijah of the ANU Center for European Studies.
She added that the practical impact may be additional trade negotiations and major trade partners, which are more concerned with each other than third countries.
Brexit And The Dollar
If Britain decides to leave the EU, the dollar is projected to be bullish together with other safe-haven currencies. The dollar-yuan pair is expected to be in an uptrend as the yuan can hold up in a risk-off environment unlike the dollar-yen pair, which could fall if Brexit happens.
Currency traders might move most of their funds into the U.S. dollar and neglect the pound in the event that Britain leaves the EU. In the next 24 hours the market has to process the implications of whatever the outcome is. There could be a huge market turbulence as the vote hits financial sectors globally.