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Pound to Australian Dollar Rate Tests 1.65 Handle as GBP Firms Before UK Inflation Data

September 10, 2017 - Written by John Cameron

The British pound to Australian dollar exchange rate is just below the 1.65 handle as UK traders await the latest inflation data release today.

GBP/AUD is quoted at 1.64199 on Tuesday, September 12 (08:30 GMT) ahead of the day's key release (see live data here)

"Sterling is up slightly ahead of today’s inflation data and Thursday’s policy announcement from the Bank of England" say analysts at Lloyds in a brioef today.

"A strong inflation outturn may provide a further boost"

Last week brought high fluctuations for the GBP/AUD.

Opening at an exchange rate of 1.6243, rising to a weekly high of 1.6387 mid-week then falling back near 1.6296 as forex markets entered the weekend.

British Pound Fluctuated on Leaked Brexit Plans

The Pound sterling was highly volatile last week, with both UK domestic data and political news strongly influencing the UK currency.

The week started off on a poor note, when August’s construction and services PMIs both showed slowing sector activity. Additionally, Tuesday also brought news that UK car sales had fallen by -6.4%, the fifth reported decline in as many months.

There was little direct economic news over the middle of the week, which left leaked government documents in focus. These covered UK plans to restrict EU worker access to the country after Brexit, as well as a veiled government request for UK businesses to support the Brexit process. Each leak lowered trader confidence significantly, which saw the Pound struggle against the Australian Dollar.

In the former case, UK businesses were immediately critical of the immigration plans, which included proposed measures to fine companies that chose EU workers over the UK workforce. The proposals also garnered criticism because of the predicted strain it would place on seasonal and agricultural industries across the UK.

The leaked letter requesting a show of support came immediately after the immigration plans were exposed, which prompted scepticism that any companies would actually back the government’s endeavors.

Rounding off the week was a trade balance announcement which lowered confidence about the Brexit process. While the UK trade deficit did reduce in July, it also showed a heavy reliance on UK trading with the EU.

With a post-Brexit EU trade deal still a long way off, the data only further lowered confidence about the UK’s chances of flourishing after it leaves the EU.

Finally, the British Chambers of Commerce (BCC) blasted the UK’s economic chances on Friday by warning about meagre growth rates. Summarising the BCC’s outlook, Director General Adam Marshall said;

‘While some businesses report strong trading conditions, the UK economy as a whole is treading water, and there is no sign on the horizon of a return to healthier levels of growth’.

Piling on the gloom, Marshall ended by saying;

‘Our forecast suggests that the hoped-for rebalancing of the UK economy towards investment and export is unlikely to materialise in the medium term.
The rising upfront cost of doing business in the UK, the uncertainty around Brexit, and the constraints created by skills gaps and shoddy infrastructure collectively outweigh any benefit arising from the recent depreciation of Sterling’.

Australian Dollar Aided by Optimism over RBA Rate Decisions

As with the Pound, the Australian Dollar had a busy week previously, having been shifted by a Reserve Bank of Australia (RBA) interest rate decision and GDP figures.

The RBA rate decision saw a forecast-matching freeze, but RBA officials were generally optimistic about the future. In spite of this, many economists still thought that the RBA would not touch interest rates until 2018 at the earliest.

The Australian Dollar appreciated after the RBA meeting and received later support from higher reported growth in the second quarter. Near the end of the week, however, the national trade balance reduced unexpectedly while construction activity also slowed against forecasts.

Weekly GBP AUD Forecast: BoE Rate Decision and UK Jobs Stats Ahead

This week will bring a number of major UK and Australian ecostats, starting off with UK inflation figures on Tuesday.

The inflation rate is tipped to slow on the year in August, but this will be considered in relation to Wednesday’s wage figures. If wages grow while inflation slows, the Pound may appreciate, as this will lessen the current wage squeeze being felt by UK consumers.

That said, lower inflation means lower chances of a Bank of England (BoE) interest rate hike, so traders may not view a smaller gap between wages and inflation as entirely good news.

Sticking with the BoE, the central bank will makes its September interest rate decision on Thursday and is tipped to leave rates on hold. More notable will be any dissenters voting for a hike, who could spark a brief GBP AUD rally.

For the AUD, traders are primed for Thursday’s unemployment rate release. Although the actual jobless rate is not expected to change, a rise in overall employment and full time employment in particular could push the Australian Dollar up.
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