Currency Experts Forecast More Australian Dollar (AUD) Strength vs GBP, EUR and NZD on Foreign Exchange Rate Markets

August 21, 2017 - Written by Ben Hughes

STORY LINK Currency Experts Forecast More Australian Dollar (AUD) Strength vs GBP, EUR and NZD on Foreign Exchange Rate Markets

The pound to Australian dollar exchange rate has steadily fallen since the 2017 best levels of 1 GBP = 1.7622 AUD back in May. A strong Aussie and Brexit-weakened sterling has prompted this trend.

Last week's strong UK labour market results from June were unable to boost the GBP/AUD. Instead, US political and economic uncertainties left risk-correlated currencies like the ‘Aussie’ much more appealing.

The week saw the GBP/AUD tumble from 1.6474 to around 1.6230. The pair briefly touched on a five-month-low of 1.6194 late in the week, but the pair has generally trended above 1.62.

Pound (GBP) Demand Limited Since July Inflation Report

Any bout of Pound strength since last week’s UK Consumer Price Index (CPI) results came in have been highly limited, as investors don’t expect the Bank of England (BoE) to take a hawkish tone on its monetary policy outlook any time soon.

As UK inflation fell short of forecasts at only 2.6% year-on-year and -0.1% month-on-month, the Bank of England (BoE) has plenty of ammo to support keeping monetary policy at its loosest levels on record.

Without any real chance of a UK interest rate hike soon (unless inflation surges again), the Pound has lost much of its market appeal, particularly with so much economic uncertainty amid the Brexit process.

While last week’s UK labour market report from June beat expectations in most major prints, wage growth was still not able to keep up with inflation.

This meant that ‘real wages’ continue to fall in Britain, keeping a pay squeeze on UK households.

July’s retail sales results did beat expectations month-on-month, but overall there was little in the report to improve long-term confidence in Britain’s economy.

Until the pay squeeze fades, it has the potential to weigh on consumer confidence and activity, while the Brexit process continues to limit business investments.

AUD Supported by Demand for Risky Currencies

Risk factors have been improving over the past seven days, as the US Dollar weakens on political and Federal Reserve uncertainties and commodity prices see strong performance.

With Fed rate hike bets low and commodities in high-demand, risk-correlated currencies like the Australian Dollar have seen stronger demand too.

Prices of iron ore, Australia’s most lucrative commodity, reached US$77.94 per tonne on Friday, the commodity’s highest level since April 2017.

The year-on-year decline of iron ore has thinned considerably to just 1.18% due to strong performance in recent sessions.

Despite the Reserve Bank of Australia’s (RBA) recent warnings about the strength of the Australian Dollar, more economists expect that the ‘Aussie’ will continue to trend strongly – largely due to US Dollar weakness.

According to the National Australia Bank’s (NAB) FX strategy team, who previously predicted AUD to weaken in 2017;

‘Having held our nerve through the first seven months of 2017 with our long-standing call for the AUD/USD to fall to 70 cents by the end of this year, the ever-diminishing prospects for a significant near-term recovery in the US dollar now forces us to acknowledge that it is now difficult to expect such a steep fall this year’

Overall, with a lack of reasons to buy the Pound and the ‘Aussie’ resilient due to persistent risk-sentiment, GBP/AUD continues to trend near its lows.

GBP/AUD Exchange Rate Forecast: Investors Await UK Growth Report

The Pound may not see much inspired movement until later in the week, when Britain’s key Q2 Gross Domestic Product (GDP) projection will be updated.

Tuesday’s UK public sector net borrowing and CBI industrial trends results could influence Sterling trade slightly, but so long as risk-sentiment remains strong the GBP/AUD exchange rate is unlikely to see a strong recovery.

Speaking of risk-sentiment, the Australian Dollar is likely to hold its ground so long as US political and central bank concerns persist.

This also means that if Fed officials take a surprisingly hawkish stance at the upcoming Jackson Hole symposium and Fed rate hike bets rise, the ‘Aussie’ will weaken and GBP/AUD foreign exchange rate will advance.

As for Australian data, this week’s Australian economic calendar is very quiet, meaning investors will largely be reacting to commodity news and risk movement throughout the week.

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TAGS: Australian Dollar Forecasts Currency Predictions Pound Aus Forecasts