Pound to Australian Dollar Exchange Rate News: AUD Vulnerable to Wider Marker Sentiment

August 23, 2017 - Written by David Woodsmith

STORY LINK Pound to Australian Dollar Exchange Rate News: AUD Vulnerable to Wider Marker Sentiment

The pound to Australian dollar exchange rate is holding steady on Friday 25th August, quoted at 1.62082 ahead of the day's key event, the Jackson Hole Symposium.

In the absence of any fresh UK data the GBP/AUD lacked any particular momentum during this week's session on foreign exchange markets.

While the Conservative government continued to outline its position on key issues surrounding Brexit this did little to improve the appeal of the Pound.

Concerns remain that the UK and EU are showing no real signs of approaching any sort of agreement, as analysts at Brown Brothers Harriman commented:

‘The position papers are more addressed to the domestic audience rather than as a negotiating tool. There still seems to be a sense of bewilderment. The UK, for example, still does not accept the EU's negotiating sequence: first the divorce and then the arranging new friendship with potential benefits.’

Thus, even if the government shows signs of softening its stance this is unlikely to offer the GBP AUD exchange rate much in the way of support in the near term.

However, with risk appetite fading ahead of the meeting of major central bank policymakers in Jackson Hole the Australian Dollar was unable to capitalise on the weakness of the Pound.

Brexit Uncertainty Dampens Pound Outlook

As forecasts point towards the second estimate of the UK second quarter gross domestic product remaining consistent with the initial reading this could offer a degree of support to GBP exchange rates.

On the other hand, if growth is revised lower this may weigh heavily on demand for Sterling as confidence in the outlook of the UK economy remains limited.

Given that the uncertainty of Brexit is likely to weigh on the domestic economy for the foreseeable future investors will be hoping to see some signs that activity could rebound in the third quarter.

Volatility is also likely in response to the latest BBA loans for house purchase data, which may point towards a further loss of momentum within the domestic housing market.

Even if this data surprises to the upside, though, the unfolding reaction to the government’s Brexit proposals could continue to hamper the GBP AUD exchange rate.

As analysts at ING noted:

‘We expect GBP to trade with a negative bias ahead of the governing Conservative party conference and key Brexit talks in October. However, we see this as a short-run phenomenon at best; it's difficult to see any material GBP fallout in the absence of any flaring tail risks such as a breakdown in the UK-EU negotiations and renewed cliff-edge Brexit risks.’

If EU officials push back against the UK’s suggestions this could lead the Pound to slump sharply, encouraging fresh speculation over the likelihood of negotiations concluding without any new deal in place.

AUD Upside Remains Limited Thanks to Fragile Risk Appetite

The Australian Dollar has remained largely at the mercy of wider market sentiment this week, benefitting from growing scepticism over the Trump administration’s ability to deliver on its policy promises.

However, this has also left AUD exchange rates vulnerable to deterioration as speculation over the policy outlook of the Federal Reserve starts to pick up once again.

If Fed Chair Janet Yellen takes a more hawkish tone on monetary policy on Friday this could prompt the Australian Dollar to slump sharply, with a stronger US Dollar likely to weigh heavily on commodity prices.

Underlying support for the ‘Aussie’ is likely to remain limited in the near future, though as Tim Baker, strategist at Deutsche Bank, commented:

‘Moves in rate differentials have helped the AUD as well – RBA pricing has swung from a cut to a hike on the back of RBA’s neutral rate talk and strong jobs data (as well as the familiar story of elusive US inflation US). We think this story is overdone - the wage growth cycle in Australia looks well behind the US, with relative wage growth pointing to lower AUD next year. But next year’s a long way away – it’s not clear what dislodges this story any time soon.’

Should markets start to reprice the odds of a Reserve Bank of Australia (RBA) policy move once again this may offer the GBP AUD exchange rate a strong rallying point, though.

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TAGS: Daily Currency Updates Pound Australian Dollar Forecasts