Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rate Climbing as Aus Currency Softens Significantly

September 14, 2014 - Written by David Woodsmith

STORY LINK Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rate Climbing as Aus Currency Softens Significantly

The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate saw gains last Friday in a continuation of this week’s steady upward momentum.

With an influential run of events and data releases taking place this week, Sterling has been able to climb against other majors including the Australian Dollar. Meanwhile, the ‘Aussie’ has been trending lower due to the fall in iron ore prices—one of Australia’s most prominent exports, and speculation that Australia’s employment data for August is inaccurate. Moreover, China’s inflationary levels failed to reach economists’ expectations on Thursday, causing the ‘Aussie’ to soften.

Australian Dollar Rate Suffers after Poor Chinese Inflation Figures

The Australian Dollar experienced a volatile day on Thursday with a weaker than expected Chinese Consumer Price Index (CPI) being released. China, as Australia’s largest trading partner, has a direct effect on the Australian Dollar’s worth. The Consumer Price Index is the main measure of inflation within the economy and Thursday saw China’s consumer price growth slowing as domestic demand waned. After Thursday’s report showed growth of only 2% in August on a year-on-year basis, Economists have stated that there is a possibility of deflationary pressures rising if expansion remains sluggish. Economist Liu Ligang commented that Thursday’s figures: ‘show that China’s deflation pressure is definitely rising. Domestic demand is very weak, and monetary policy is slightly tight.’

Furthermore, seemingly favourable Australian Employment Change and Unemployment Rate figures caused some volatility for the ‘Aussie’ as economists debated the authenticity of the data. The Australian Unemployment Rate was expected to soften from the former 6.4% to 6.3%; instead the drop was more significant, with joblessness tumbling to 6.1%. Such an alteration in the unemployment sector fuelled speculation that the Reserve Bank of Australia (RBA) would hike interest rates sooner than expected. Economist Savanth Sebastian commented: ‘The Reserve Bank has said that the leading indicators are suggesting a turnaround in the jobs market—advertisements are lifting and hours worked are lifting. Overall this is a good result for the Australian economy, it will help support confidence and that’s the key ingredient at the moment.’

Moreover Employment Change numbers showed that the Australian economy created 121.0K jobs in August, an astronomical amount in comparison to July’s 4.1K contraction of jobs, and the forecast 15.0K. Economists were baffled by such an unexpected figure, and the Australian Bureau of Statistics (ABS) called for investigation into the data to verify the accuracy. Industry expert Spiros Papadopolous commented: ‘Despite the ABS’ denial, the size of the August rise is hard to believe.’ Thursday’s figure shows the largest percentage rise in Australian employment in the last 23 years.

After July’s data showed unemployment figures rise, flirting with 10-year highs, Augusts’ statistic shows a surprising turnaround. Economist Rikki Polygenis stated: ‘We had been expecting some rebound in employment, but that was a rebound of 20,000 jobs and obviously that was one-sixth of the gain that we actually saw in employment.’

Sterling Gains after Interest Rate Hike Optimism from Carney

The Pound, on the other hand, has strengthened following statements from Bank of England Governor Mark Carney. Carney stated that interest rate hikes were likely to materialise in the spring, with wage increases to follow. Carney also touched upon the Scottish referendum, which is fast approaching. The Governor stated clearly that a currency union between an independent Scotland and the remainder of the UK wouldn’t be possible, putting a dampener on the Scottish ‘Yes’ vote campaign.

Upcoming data releases which may affect the GBP to AUD exchange rate include Tuesday’s UK Consumer and Producer Price Index. Tuesday will also see the Assistant Governor of the RBA Chris Kent speaking at the Bloomberg Summit in Sydney which could influence the softened ‘Aussie’. The latest Bank of England Meeting Minutes are scheduled for release on Wednesday. These will allow insight into the latest Monetary Policy Committee vote in which the board decided to keep interest rates at their current benchmark.

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