3-Year Low for Pound Australian Dollar Exchange Rate after Inflation Stats

October 26, 2016 - Written by Frank Davies

STORY LINK 3-Year Low for Pound Australian Dollar Exchange Rate after Inflation Stats

The Pound to Australian Dollar exchange rate slumped on Wednesday. While Tuesday’s drop was due to Bank of England (BoE) easing bets, Wednesday’s drop was the result of Australia’s Q3 inflation results reassuring investors of a neutral stance from the Reserve Bank of Australia (RBA).

GBP/AUD began the week trending near a weekly high, but has already lost over a cent in value due to Tuesday and Wednesday’s falls. The pair hit a new three-year-low of 1.5801 on Wednesday morning.

Pound (GBP) Exchange Rate Undermined by Fears of Continued BoE Stimulus

After trending solidly on hopes for some kind of MP vote on the Brexit for about a week, Pound Sterling’s (GBP) key support levels gave way on Tuesday thanks to comments made by UK Chancellor Philip Hammond.

Hammond stated that the low value in the Pound was likely to cause British inflation to spike. He also confirmed that the UK government would not refuse or interfere with monetary policy from the Bank of England (BoE).

When asked about a possible extension to quantitative easing, Hammond replied that the UK government had no reason to refuse such a program. This indicated to many investors that more QE was indeed on the way and Sterling plunged as a result.

However, BoE Governor Mark Carney made no hints towards policy extension in a testimony made on Tuesday. This allowed Sterling to recover from its worst levels.

Australian Dollar (AUD) Surges after Reassuring Inflation Results

The Reserve Bank of Australia (RBA) has indicated in recent months that it would maintain a neutral stance on monetary policy, but stated last week that this depended on the data published between then and November’s meeting.

After last week’s key Australian employment results were published, the Pound Australian Dollar exchange rate made modest gains on fears that this could lead to a new cycle of RBA easing.

However, these concerns were softened considerably in Wednesday’s Asian session following the publication of Australia’s Q3 Consumer Price Index (CPI).

Inflation came in well above expectations, improving from 0.4% to 0.7% quarter on quarter and jumping from 1.0% to 1.3% in the yearly print. As a result, the ‘Aussie’ woke up market risk-sentiment and rallied on Wednesday.

GBP/AUD Forecast: Low Risk-Sentiment to Weigh on ‘Aussie’ in Coming Week

While Australian Dollar exchange rates rallied across the board on Wednesday, AUD advances were heavily limited due to quickly diminishing risk-sentiment.

The ‘Aussie’, as a heavily risk-correlated currency, has difficulty strengthening amid jittery market conditions, and with the US Presidential election just under two weeks away these jitters are only set to increase.

As a result, Sterling could recover considerably against the Australian Dollar in the next week even if AUD buy factors are otherwise solid.

Data due for publication on Thursday may also give the Pound a boost. Britain’s highly anticipated preliminary Q3 Gross Domestic Product (GDP) scores will be published and will give economists a more concrete idea of how Britain’s economy has grown in the first quarter since the Brexit vote.

If this score prints above expectations this is likely to support the Pound and could even offer it a limited rally. As a result, it’s possible for GBP/AUD to have recovered from its weekly losses by the end of the week.

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