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Brexit and Australia: How the UK Leaving the EU Affected Australian Economy

April 29, 2021
by Nick Alexander, Market Analyst

Article Recap

The Brexit negotiations were one of the main drivers not just for the British but also the World economy. They have also affected Australia.

With Brexit now in play there has been a great deal of uncertainty and challenges presented to both the European Union and the United Kingdom. Since the referendum, Brexit’s effect on the pound has been watched carefully by investors and traders globally, as the GBP has experienced high amounts of volatility.

However, has Brexit had an effect on the Australian economy? Find out in our guide as we explore Brexit’s pros and cons and its economic impact on Australia’s economy.

What is Brexit Again?

Newspapers from around the world with the news of the Brexit referendum on front pages

Brexit was the main event for the media around the world at the time of the referendum.

Brexit is a term used to describe the split between the United Kingdom and the European Union. The June 2016 referendum led to the majority vote being ‘leave’. 17.4 million votes the wheels were set in motion for the UK to exit the European Union. After the results, the Sterling Pound plummeted to its lowest level in 30 years against the USD.

Brexit and Australia: What Has Happened So Far?

Australia watched in anticipation as tensions mounted across the world. With Brexit in play, what does this mean for Australian consumers, the economy and FX rates?

The UK was classified as one of Austalia’s largest trading partners and many Australian companies also operate in the UK in order to do business across Europe. Since Brexit, there has been optimism around the increase of opportunities that could arise with the UK, especially with exports.

What Happened to the GBPAUD?

At the end of 2020, one of the main drivers affecting the GBPAUD was the ongoing Brexit negotiations. If there was a likely no-deal scenario, the Sterling would have suffered. As a result, the value of the pair would have also weakened.

However, as it turned out the UK walked away with a deal in hand. This surprisingly didn’t have that much of an effect on the Pound as anticipated. There has been little respite for the GBP as the country headed back into its third national lockdown.

According to the Australian Dollar Forecast, the Aussie dollar has been strong against the pound and this would have continued if Australia wasn’t fighting its own problems with the pandemic.

The effect was stronger on other pairs on the Forex market. In comparison, during August and September 2020, trader and investor worries around Brexit negotiations could have ultimately led to the weakening of the Pound against the Euro and the Dollar. The GBPEUR lost around 1.65% of its overall value and the GBPUSD saw fell by 3.11%.

In December 2020, it seemed that a possible no deal was on the cards, after much back and forth on the negotiation front. We saw the GBPUSD build demand from below the 1.3344 price level. As we mentioned earlier, the GBPAUD would have weakened if the UK had walked away without a deal in place.

What does the future hold for Australia post-Brexit?

Most investors and traders will be wondering how Brexit will affect the Australian economy moving forward, as Australia will be expected to work directly with a changed EU.

According to the Australian Institute of International Affairs, the relationship between the EU and Australia have been tense over the past several decades. Quarrels between both parties revolved around Agricultural issues. Despite this has been a corporation over the more recent years, and now the EU is one of Australia’s largest trading partners.

What is important to note is that negotiations around a Free Trade Agreement had commenced in 2017 between the EU and Australia. Now that the EU has more pressing matters at hand, will there be further delays, and if so what will the impact be on the market, especially the commodity market?

On the other hand, how is the situation looking between Australia and the UK? We have to wait and see if there are any trade negotiations made between the two nations. If so what could this mean for both economies?

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The flags of Australia and the European Union

One thing is evident, the Australian Government has ensured that any risks from Brexit will be quickly addressed. There is a sole focus on negotiating an Australia-UK FTA and an Australia-EU FTA.

As of January 2021, arrangements have been made to ensure that Australian business can continue to grow in the UK. The Australian government has ensured a range of arrangements including:

  • ‘Unniterupted wine exports to the UK under a new bilateral Wine Agreement’.
  • Continued air services.
  • Smooth commercial operations for Australian mining companies.

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