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GBP to AUD Exchange Rate Edges Higher as UK Retail Sales Beat Projections

July 20, 2017 - Written by Frank Davies

This week’s UK data has been mixed, but the British Pound to Australian Dollar exchange rate began to recover from its multi-month-lows towards the end of the week in reaction to Thursday’s UK and Australian ecostats.

After plummeting from 1.6720 to a three-month-low of 1.6334 earlier in the week, the GBP/AUD exchange rate edged higher on Thursday morning. At the time of writing, the pair was near the level of 1.6428.

GBP Boosted as UK Retail Sales Beat Expectations

The Pound was bought up from its lows on Thursday as investors reacted to Britain’s June retail sales results.

Retail sales were projected to rise slightly higher from -1.1% to 0.4% month-on-month and from 0.9% to 2.5% year-on-year. The results came in at better-than-expected figures of 0.6% and 2.9% respectively.

The report from the Office for National Statistics (ONS) noted that the main reason for the increase in retail activity was June’s hot weather, prompting shoppers to get outside more often and buy summer products.

Overall, the report was pretty encouraging for Pound traders amid warnings that Britain’s pay squeeze would cause a drop in retail activity as households reined in spending.

However, analysts remained sceptical about Britain’s economic outlook. Ana Boata from Euler Hermes stated that UK retailers were still in for a rough time;

‘Pressure on consumers is impacting the sector as retail sales have slowed over the last several months. UK household savings are now at the lowest level in 50 years and are equivalent to a level registered in the US in 2008 at the height of the financial crisis. This, plus falling regular earnings when adjusted for inflation, allude to an extremely challenging environment for retailers.’

As the boost in retail sales was caused by hot weather rather than consumer confidence and the first half of 2017 looked to be pretty flat overall in terms of retail activity, the Pound outlook didn’t change much.

As a result, Sterling’s late-week gains were limited and the currency still struggles from a lack of Bank of England (BoE) tightening bets.

AUD Slips on Underwhelming Australian Job Market Data

The Australian Dollar slipped on Thursday, seemingly bringing an end to its multi-week rally as investors reacted to Australia’s June employment results.

Australia’s June employment change was forecast to come in at 15k but only printed 14k. The previous figure was revised lower from 42k to 38k.

Australia’s unemployment rate came in at 5.6% as forecast, but the previous figure was unexpectedly revised from 5.5% to the worst 5.6%.

However, the worse-than-expected Australian unemployment rate data may have been partially caused by an unexpected rise in the participation rate, from 64.9% to 65%.

The Reserve Bank of Australia (RBA) noted in this week’s meeting minutes that it was still carefully observing Australia’s job market.

This latest employment report is unlikely to have eased RBA concerns much, so the results were overall disappointing to ‘Aussie’ investors hoping for a more hawkish central bank tone.

Still, the Australian Dollar remains much stronger this week thanks to a weak Pound and the perceived hawkish tone of the RBA minutes overall.

GBP/AUD Forecast: Australian Inflation Stats Next Week

The Pound to Australian Dollar exchange rate is unlikely to recover much more towards the end of the week, unless the Australian Dollar selloff picks up speed.

Analysts have been calling the ‘Aussie’ overvalued in recent months, with some predicting the antipodean currency will see some big drops in the coming months.

On the other hand, its employment report-influenced weakness appears to be limited.

Investors won’t have much reason to buy the Pound until next week either, unless Friday’s UK public sector borrowing results are surprisingly optimistic. As a result, GBP/AUD looks likely to end the week relatively close to its lowest levels since early-April.

Key data will be published next week, including Britain’s Q2 Gross Domestic Product (GDP) projections and Australia’s Q2 Consumer Price Index (CPI) results.
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