Iron Ore prices Key to Pound to Australian Dollar Exchange Rate Outlook and the Short-Term AUD Strength

August 20, 2017 - Written by John Cameron

STORY LINK Iron Ore prices Key to Pound to Australian Dollar Exchange Rate Outlook and the Short-Term AUD Strength

The Australian dollar remains buoyant with the currency markets on the second full trading day of the week. A snap shpt of the key G10 is as follows:

The Pound to Australian Dollar exchange rate is -0.12 pct lower at 1.62318.
The Euro to Australian Dollar exchange rate is -0.1 pct lower at 1.48672.
The US Dollar to Australian Dollar conversion rate is steady at 1.25987.
The New Zealand Dollar to Australian Dollar exchange rate converts -0.09 per cent lower at 0.92238.

British Pound (GBP) Tumbles as Inflation Figures Miss Expectations

GBP/AUD fell close to a new five-month low last week as Sterling sentiment was undermined by a disappointing inflation report from the UK.

After initially holding steady against the Australian Dollar on Monday Sterling fell sharply on Tuesday as the UK released its latest Consumer Price Index.

According to data released by the Office for National Statistics UK inflation remained flat at 2.6% in July, disappointing investors who had expected it to have risen to 2.7%.

The subsequent drop in the Pound was mainly driven by market speculation that the slowdown in inflation was another signal for the Bank of England (BoE) that it can leave interest rates on hold.

Neil Wilson, senior market analyst at ETX Capital said, ‘The expected pickup didn’t happen. Inflation remains cooler and the pound dipped as investors had expected a rebound in July following the surprise drop in June...The data doesn’t radically alter the view on the Bank of England, but it certainly cements the belief that a rate hike this year now looks highly unlikely. The market was positioned for a bit more inflation than we’re getting.’

The downtrend in GBP AUD exchange rate continued on Wednesday as not even upbeat employment figures from the UK were enough to stem Sterling’s losses, despite unemployment falling to a new 42-year low and average earnings unexpectedly jumping from 1.9% to 2.1% in June.

However the Pound was able to rally from its worse levels early on Thursday as the UK’s latest retail data was better than expected with the ONS reporting that sales grew at 0.3% in July, beating forecasts that they would have only grown at 0.2%.

Sterling’s gains proved to be short-lived however as Friday brought fresh concerns over Brexit when UK officials reportedly admitted that the beginning of trade talks with the EU were likely to be delayed as the two sides continue to disagree over the UK’s withdrawal arrangements.

Australian Dollar (AUD) Lifted by Labour Figures

The Australia Dollar got off to a strong start last week as the Reserve Bank of Australia (RBA) released the minutes from their most recent policy meeting, with the bank’s cautious optimism impressing many investors who had expected the RBA to maintain its dovish outlook.

The ‘Aussie’ continued to strengthen overnight on Tuesday, with markets apparently willing to shrug off Australia’s latest earning’s data, which revealed that wage growth remained at a record low in the second quarter.

Australia’s other employment figures proved to be more upbeat However, with AUD GBP strengthening further early on Thursday as the Australian Bureau of Statistics (ABS) released data revealing that employment rose by 27,900 in July, easily outpacing expectations of a 20,000 rise and causing total employment to reach a new all-time high of 12,201,400.

However some analysts suggested that the weakened wage figures could hold back the Australian economy despite the rise in employment, with the Aussie retreating during the European session as they suggested it could prevent the RBA from hiking interest rates for the foreseeable future.

Callam Pickering, APAC economist at Indeed said, ‘With the unemployment rate remaining at 5.6% and measures of underemployment still elevated, there is still a high degree of slack across the labour market. This is helping to contain wage growth and indicates that the economy still has some way to go before the Reserve Bank should contemplate tighter monetary policy.’

Will the GBP AUD Exchange Rate Tumble if UK GDP Remains Subdued?

Looking ahead the GBP AUD exchange rate may tumble again next week as the UK releases its latest GDP estimate, with economists still forecasting that Britain’s economy will have grown 0.3% in the second quarter.

Meanwhile the Australian Dollar may also struggle to advance next week due to a lull in notable economic data, likely leaving the currency exposed to external influencers such as commodity prices and market risk appetite.

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TAGS: Currency Predictions Pound Australian Dollar Forecasts