While the United Kingdom only accounts for 2.7% of Australia’s exports, we are still subject to the wave of uncertainty Brexit has triggered on global financial markets, and this will be magnified if other EU countries decide to follow in their footsteps. The immediate effect was on exchange rates, with the US dollar rising against most currencies and, while this might assist our exporters in the short term, a stronger greenback is not necessarily good for the global economy and commodity prices.
China is our biggest trading partner and although their economy has fallen, economists are saying it appears to have stabilised. Australian importers and exporters will rightly continue to place much more importance on our trading relationship with China, rather than UK/Europe, in the coming twelve months.
This week the reserve bank again held interest rates at their record low rate of 1.75%, and they have left the door open for a further cut in August. Much of the world is on zero or negative rates and the RBA will want to see if consumer prices remained subdued in the last quarter of 2015/16. Another cut by the RBA will not necessarily be reflected in the rates on loans offered by the big four banks, however.
The big question is how effectively the LNP will be able to govern and get their budget passed through the senate. At the time of writing, it is still a cliff-hanger with a hung parliament on the cards, although it will become clearer in the coming days whether they can form a majority. Rating agencies have put Australia’s triple-A credit rating on ‘negative watch.’ Taking into account the ongoing political uncertainty resulting from Brexit and the forthcoming US presidential elections, months of nervous markets may lay ahead.
