While some exporters of primary produce are optimistic that Britain’s exit from the EU might present new opportunities for us, there are a couple of areas that Australian traders need to keep an eye on.
High on the list of concerns is our exchange rate. In the first 24 hours after the result was announced, Britain’s pound sterling suffered its worst day of trade ever, plummeting from $US1.50 to a 30-year low of $US1.35. The Australian dollar fell from above US76¢ to US73.5¢, while the Japanese yen surged to a three-year high and gold prices soared as much as 7 per cent to about $US1345 an ounce. While the fall is beneficial to our exporters, importers might want to consider currency hedging as one effective method in insulating themselves from risk. During uncertain times it can give trading companies at least some certainty over their future and allow them to make informed decisions in times of global economic upheaval.
As for the ASX, the first day of trading saw more than $70 billion wiped off the Australian stock market in a matter of hours. Commodity prices can also impact the Australian economy. Interest rates are heavily dependent on fluctuations in commodities, and downward movements in this area would put more pressure on the RBA. This is bad news for whichever party wins the election next week, either of which might hope to see commodity prices rise in order to help the Federal Budget bottom line. Oil prices could decline as well. While this may not have a huge effect on the Australian economy, the negative effects on other oil-based economies could trickle down under.
Of course the initial volatility will pass, and Britain has two years to negotiate outcomes with its European neighbours.
