Pound Sterling (GBP) to Australian Dollar (AUD) Edges Lower on Lingering Risk-Sentiment

December 29, 2016 - Written by James Fuller

STORY LINK Pound Sterling (GBP) to Australian Dollar (AUD) Edges Lower on Lingering Risk-Sentiment

The Pound to Australian Dollar exchange rate extended its recovery attempt towards the end of Friday’s session but while it may end the week closer to opening levels GBP/AUD looks to have lost around half a cent in value over the week.

If iron ore prices continue to improve in early-2017 this could help boost the ‘Aussie’ against what is expected to be high demand for ‘safe haven’ currencies as the uncertainties of a Trump Presidency and Brexit process become reality.

[Previously updated 29/12/2016]

The Pound to Australian Dollar exchange rate slipped below the level of 1.70 on Thursday as Sterling lacked appeal and traders bought the ‘Aussie’ amid a US Dollar selloff. Prices of iron ore also boosted demand for the Australian Dollar.

GBP/AUD began the week at the level of 1.7118 and has since lost over a cent in value despite underlying weakness in the ‘Aussie’.

Pound (GBP) Lacks Appeal as 2017 Approaches

Investors expect the Pound to have a poor 2017. While Sterling recovered from its worst levels in the final months of 2016, that bullishness appeared to have faded by late-December as investors looked ahead with pessimism.

Analysts and economists have projected slowing economic activity over the next year as the UK government begins to undergo the formal Brexit process. Some analysts suggest businesses may even begin to leave the country out of fear of losing single-market access.

Investors had hoped that the UK would maintain single market access after the Brexit process ends, but those hopes have slightly waned in recent weeks amid reports that it would only take one EU member state to veto a potential post-Brexit trade deal between the UK and EU.

With a lack of fresh supportive factors for the Pound and the date of Article 50’s activation drawing ever nearer, Sterling has performed poorly this week.

Australian Dollar (AUD) Bolstered by US Dollar (USD) Selloff

While the Pound’s poor performance has allowed an otherwise weak ‘Aussie’ to advance against it, the Australian Dollar has also seen modest support from risk factors this week.

Investors have been selling the US Dollar (USD) from its highs due to bearish analysts seeing the currency as overbought in the last few months of 2016. Profit-taking stances on USD have also been popular.

As the Australian Dollar’s recent weakness is largely correlated to the strength of the US Dollar as well as forecasts of higher Federal Reserve interest rates in the coming year, this has given the ‘Aussie’ some room to breathe.

The ‘Aussie’ has also been supported this week by a brief risk-rally as well as the increasing price of iron ore, Australia’s primary commodity export.

GBP/AUD Forecast: Risk Factors to Drive Exchange Rate Amid Lack of Data

The Pound to Australian Dollar exchange rate could continue falling in the coming week, especially if the Australian Dollar recovers some of its fundamental strength as its performance has been largely limp.

Friday’s Australian private sector credit results from November may bolster the ‘Aussie’s defences slightly if they impress, but if not the Australian Dollar could continue to see limited demand.

The UK will not see influential data until next week. The first week of the New Year will see Markit publish its December PMIs for Britain. Australian PMIs will also be published next week, by AiG.

These results may influence GBP/AUD movement, but underlying trends in the exchange rate are more likely to be shifted by major factors like developments in Brexit talks for the Pound, or the strength of the US Dollar for the ‘Aussie’.

If iron ore prices continue to perform well and US Dollar jitters continue ahead of Trump’s 20th of January inauguration, the Australian Dollar could continue to push GBP/AUD lower.

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