Pound Australian Dollar Rate Forecast: Fed Bets Weigh on AUD Trade

December 16, 2016 - Written by Minesh Chaudhari

STORY LINK Pound Australian Dollar Rate Forecast: Fed Bets Weigh on AUD Trade

The Pound Australian Dollar exchange rate has risen by around a cent on Friday as markets continue to shun the high-yield Australian Dollar following the Federal Reserve’s rate hike on Wednesday.

Pound (GBP) Rises as Aussie is Weakened by Hawkish Fed Forecasts

The British pound rallied this morning as a strengthening US Dollar (USD) places considerable pressure on the Australian markets.

The ‘Greenback’ has been bolstered in the last couple of days by the Fed’s decision to raise US interest rates in December and its hawkish tone towards future rate hikes.

Thanks to a string of upbeat data in recent months Fed Chair, Janet Yellen predicted there could be up to three rate hikes in 2017. As Bloomberg reported;

‘The moves mark a step back after a dramatic week in which the U.S. central bank unveiled its outlook for an accelerated series of rate increases in 2017. That steeper path comes as President-elect Donald Trump prepares a spending agenda that may fuel fast growth and inflation in the world’s biggest economy.’

The news caused an increase in USD and notably dented demand for the riskier ‘Aussie’.

Adding to the Australian Dollar’s woes was the rise in the Unemployment rate on Thursday, with it unexpectedly rising from 5.6% to 5.7% in November as participation outpaced a net rise in employment.

GBP Bolstered by Stronger than Expected Industrial Orders

The Pound was strengthened further by the release of the Confederation of British Industry (CBI) Industrial Orders balance as it rose from -3 to 0 in December, its highest levels since April 2015 and much higher than an expected drop to -5.

This added to Thursday’s retail sales data which beat expectations that it would fall from 7.5% to 6.0% in November to stabilise at 6.6%, higher than the same period last year, thanks to a 25% rise in online shopping and the increasing prevalence of Black Friday in November.

UK GDP Report Next Week

GBP/AUD may improve further next week with the release of Britain’s last GDP report for the year, with economists expecting that it will show that the UK’s economy expanded by 2.3% in the third quarter beating a 2.1% rise in the second quarter and showing its strongest performance since the second quarter of 2015.

Meanwhile the a lull in Australian Data ahead of the Christmas period may cause the Aussie to fall as it pressured by a burst of UK data.

Pound Australian Long-Term Forecast: Will RBA Cut Rates in 2017?

Morgan Stanley are bearish on the Australian dollar in 2017:

"Australia's environment is very different with the downside surprise in 3Q GDP supporting our view that the RBA will likely need to cut rates next year."

"Iron ore prices may have rebounded,helping Australia's terms of trade, but we think the weaker growth environment will be a stronger reason for the currency weakness."

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TAGS: Australian Dollar Forecasts Currency Predictions Pound Aus Forecasts