Pound Australian Dollar Exchange Rate Declines as GBP Sentiment Drops

September 20, 2016 - Written by James Fuller

STORY LINK Pound Australian Dollar Exchange Rate Declines as GBP Sentiment Drops

The Pound (GBP) exchange rates experienced a bit of a tumble since last week, plummeting on Friday and failing to hold its ground this week as the Australian Dollar strengthened from lower Fed rate hike bets.

• The Pound to Australian Dollar conversion rate is -0.72 pct lower at 1.71704 GBP/AUD.
• The Euro to Australian Dollar exchange rate converts -0.1 per cent lower at 1 EUR is 1.48115 AUD.
• The US Dollar to Australian Dollar exchange rate today is converting -0.15 per cent lower at 1.32457 USD/AUD.

GBP/AUD began the week trending in the region of 1.7359 after falling over two cents in value on Friday. Since Monday morning, the pair has continued to fall and by Tuesday morning GBP/AUD had hit a low of 1.7178 – its lowest point in almost a month.

After last week’s Bank of England (BoE) news, the Pound has lacked the supportive news or data needed for investors to mount a more solid recovery from its recent drops.

The BoE took a mixed stance in last Thursday’s meeting, expressing optimism at the performance of Britain’s economy in August but reminding markets that the bank still intended to ease policy further if this trend didn’t continue in September.

Sterling was bought up slightly from its cheapest levels on Monday, but as market attention turned towards this week’s central bank meetings (including meetings from the Federal Reserve, Bank of Japan and Reserve Bank of New Zealand) investors quickly lost interest in the uneventful Pound.

This week’s British data has thus far been too low-influence to offer Sterling any support. Monday’s September house prices report from Rightmove came in at 4.0% year-on-year, slipping slightly from the previous score of 4.1%.

Australian Dollar (AUD) Exchange Rate Bolstered as Risk-Sentiment Edges Back

Since last week’s session, investors have been increasingly eyeing the Australian Dollar following an extended period of AUD weakness.

As global markets focused on the Federal Reserve and the chances of a September rate hike, the Australian Dollar was undermined in a market aversion to risky investments despite generally optimistic Australian economic news.

However, as US data continued to disappoint, markets began to more and more strongly doubt the potential for a September Fed rate hike and instead began to look towards risk-correlated currencies with higher yield potential – like the ‘Aussie’.
The Australian Dollar was also bolstered during Tuesday’s Asian session by the latest meeting minutes report from the Reserve Bank of Australia’s (RBA) September policy decision.

While the bank warned about falls in business investment in the report’s details, the bank took a strongly optimistic tone.

The RBA plans to leave interest rates on hold for the foreseeable future after cutting them to 1.5% earlier in the year. This hesitance to ease further cheered markets as it hinted at an end to the current dovish rate-cut cycle.

GBP/AUD Exchange Rate Forecast: Fed Decision in Focus on Wednesday

While Wednesday’s session will see the publication of this week’s sole influential UK ecostats as well as Westpac’s Australian leading index figures for August, these are unlikely to have a considerable influence on the Pound to Australian Dollar exchange rate ahead of Wednesday’s Fed meeting.

Sterling could be bolstered slightly if August’s public sector net borrowing report beats expectations considerably. Markets currently have a bearish forecast of a 10.4b expansion to the borrowing deficit.

Wednesday’s main attraction will be held during the American session, as the Federal Open Market Committee (FOMC) will hold its September policy decision.

Markets do not believe a US interest rate hike is possible this week, but if the Fed actually did hike up rates GBP/AUD would soar as the ‘Aussie’ is undermined by a strong US Dollar. The ‘Aussie’ could also be weakened slightly if the Fed plays up the chances of a December rate hike.

On the other hand, the Australian Dollar will push GBP/AUD down even further if the Fed takes a dovish tone or downplays the likelihood of a 2016 rate hike being possible.

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