GBP to AUD Loses Weekly Gains as Risk-Sentiment Increases

February 22, 2017 - Written by John Cameron

STORY LINK GBP to AUD Loses Weekly Gains as Risk-Sentiment Increases

The Pound to Australian Dollar exchange rate fell on Wednesday morning as the Australian Dollar looked to remain near its highs thanks to an increase in demand for risk-correlated currencies. Sterling’s rally from earlier in the week also faded.

GBP/AUD began the week at the level of 1.6193 and briefly reached a high of 1.6287 on Wednesday morning, before plunging to a daily low of 1.6178.

GBP Fails to Benefit from UK Gross Domestic Product (GDP) Results

After rallying for most of the week thus far, the Pound’s advances stopped on Wednesday, partially due to a mixed preliminary Q4 Gross Domestic Product (GDP) report for Britain.

Growth was expected to come in at 0.6% quarter-on-quarter and 2.2% year-on-year.

While the quarterly figure beat expectations and came in at 0.7%, year-on-year growth was unexpectedly revised to 2%.

This was largely disappointing to investors. It’s also worth noting that consumer spending dropped in recent months, increasing concerns that a slowing UK retail sector could affect growth in 2017.

It was confirmed on Wednesday that Britain was no longer the fastest growing G7 economy.

AUD Benefits from Drop in Fed Rate Hike Bets

The Australian Dollar neared its best levels against the Pound again on Wednesday despite the mixed tone taken by the Reserve Bank of Australia (RBA) in this week’s RBA minutes.

Wednesday’s Asian session saw the publication of Australia’s Q4 wage price index which came in as expected at 0.5% quarter-on-quarter and 1.9% year-on-year. This slightly relieved concerns that wages were going to be worse than expected and offset RBA easing concerns.

Demand for the Australian Dollar has also benefitted this week from the latest drop in Federal Reserve interest rate hike bets.
Tuesday’s US PMIs from Markit indicated that US private sectors were slowing in February, which led to lower expectations of US rate hikes and traders instead looked for currencies with higher interest rates for their yields.

GBP/AUD Forecast: Quieter Trade Expected Towards End of Week

Thursday and Friday’s UK and Australia economic calendars are relatively quiet which could see the Pound to Australian Dollar exchange rate cooling before the end of the week.

Reserve Bank of Australia (RBA) Governor Philip Lowe will hold a speech during Friday’s Asian session which could influence ‘Aussie’ rates if he hints at the monetary policy outlook.

As for UK data, Friday will see the publication of BBA’s January mortgage approval results, though these are unlikely to cause significant GBP movement.

The Pound to Australian Dollar exchange rate will continue to be influenced by market risk-sentiment too.

If US President Trump introduces new fiscal policy this week, bets of Federal Reserve interest rate hikes could increase which would significantly weaken AUD demand.

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TAGS: Australian Dollar Forecasts