Pound Australian Dollar (GBP AUD) Drops after ?Super Thursday?s? Dovish BoE Announcement

August 4, 2017 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP AUD) Drops after ?Super Thursday?s? Dovish BoE Announcement

The Pound to Australian Dollar (GBP AUD) exchange rate plummeted yesterday after a spate of dovish announcements from the Bank of England (BoE).

As forecast, the BoE took a particularly dovish tone, announcing that it will be keeping interest rates on hold at 0.25% with a vote of 6-2.

Notably, however, the bank also surprisingly announced that it has cut this year’s growth forecast to 1.7%, down from 1.9%, and 2018’s forecast down to 1.6% from 1.7%. This was the more significant driver in Sterling’s fall, as whilst markets were fairly unified in their belief that interest rates would remain the same, a downwardly revised growth forecast was not expected.

There was some contention regarding the number of members of the Monetary Policy Committee (MPC) that would reveal themselves as hawkish at the August meeting, with some predicting that Andy Haldane, Chief Economist would join their ranks. This did not materialise, however, and with Kristin Forbes (previous hawk) having since left the committee, the number remained at 2.

On the political front, Mark Carney, Governor of the BoE also spooked investors even further by acknowledging aspects of the Brexit transition that were affecting business investment and wage growth.

Carney Stated:

‘There is an element of Brexit uncertainty which is affecting the wage bargaining. Some firms, potentially a material number of firms, are less willing to give bigger pay rises given that it is not as clear what their market access is going to be over the course of the next few years.’

These statements quickly diminished demand for the Pound.

Australian Dollar (AUD) Remains Steady on Strong Retail Sales Figures

Demand for the Australian Dollar was hurt by a shrinking June trade surplus yesterday, though with the Pound plummeting, it was unable to capitalise on the ‘Aussie’ Dollar’s brief weakness.

Australia’s trade surplus narrowed quite dramatically in June due commodity exports weakening and the importation of various ‘big ticket’ items. However, whilst the trade surplus did narrow, there are many that considered this to be a fleeting phenomenon.

Citi’s Josh Williamson asserted that the recent boom in commodity prices would soon reverse the narrowing as early as next month.

Williamsons stated:

‘The recent rebound in global commodity prices has seen the price of iron ore recover from a low of $US54 per tonne in mid-June to $US70 at the end of July. Therefore, we expect a rebound in iron ore export values in July and a possible widening in the trade surplus as a result’.

On the other hand, today’s Australian retail sales figures continued to impress, rising 0.3% month-on-month in June, above the market consensus of a 0.2% gain, whilst the quarter-on-quarter figure rose rising 1.5% in Q2, up from the previous 0.2%.

The overall value of nominal sales hit $26.15BN; the highest value of nominal sales on record for Australia, with a $490MN rise from three months prior.

Director of Quarterly Economy Surveys at the ABS, Ben James, stated on the subject:

‘We saw rises in household goods retailing (0.9%), cafes, restaurants and takeaway food services (0.5%), clothing, footwear and personal accessory retailing (0.8%) and other retailing (0.2%)’.

This news further cemented the Australian Dollar’s gains against Sterling, leaving GBP AUD steady in its trough as the trading week draws to an end.

GBP AUD Forecast: Sterling Redemption Dependent on UK Data

On the data front for next week; Australia will receive its NAB business confidence survey figure for July on Tuesday and its Westpac consumer confidence print for August and home loans for June on Wednesday.
Thursday will see the release of a lump of UK data releases ranging anywhere from industrial, manufacturing and construction production figures to the total UK trade balance.

Overall, Sterling’s potential to turn the tides against the Australian Dollar next week is dependent on the performance of Thursday’s data, especially if Brexit news remains gloomy. Indeed should the UK trade balance prove positive, then Sterling may claw back some gains.

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