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Pound Loses Ground to Australian Dollar on Poor UK Sales Stats

October 19, 2017 - Written by Toni Johnson

During Wednesday’s trading session, the Pound appreciated against the Australian Dollar. Opening trading at a rate of 1.6807, GBP later closed higher at 1.6847.

GBP AUD Exchange Rate Down -0.5% as UK Sales Disappoint

The Pound has dropped against most currency peers today, following a disappointing result for UK retail sales in September.

For the year-on-year readings, sales slowed, while they fell into negative ranges for the month-on-month figures.

This disappointing news was seen as evidence of the damage caused by ongoing UK wage squeeze conditions.

Looking at what this could mean for the Bank of England (BoE), ING Bank economists forecast that;

‘Fragile consumer spending is a key reason why we think the Bank of England will take a cautious approach to raising rates. Whilst we expect the Bank to exit "emergency mode" with a November rate rise, we are yet to be fully convinced that the Bank will quickly follow up with a second hike over coming months’.

On the issue of a November rate hike, Deloitte Head of Retail Ian Geddes was more cautious;

‘[A November rate hike] could come at a challenging time for the retail sector. [With higher inflation and higher debt before Christmas, a rate hike would be] an additional headache for retailers’.

When UK wage growth data was announced on Wednesday, there were voiced concerns that there could be a vicious cycle of people spending less, retail sales falling and joblessness rising because of retailers cutting costs.

These latest figures have likely done nothing to go against such an alarming outlook.

Australian Dollar Advances as Unemployment Hits 5.5%

Australian news has been strongly supportive today, with national unemployment falling to a four-year low.

The reduction from 5.6% to 5.5% had not been forecast, which made the news even more impactful.

Paul Bloxham, Chief Economist at HSBC, took the news as a strong indicator that the Reserve Bank of Australia (RBA) could raise interest rates in 2018;

‘With an improving labour market, inflation past its trough and growth expected to pick up, we see a cash rate hike in early 2018’.

Highlighting the positive progress made on getting Australian into work was Bruce Hockman, Chief Economist for the Australian Bureau of Statistics (ABS). Hockman said;

‘The trend unemployment rate had been hovering in the range of 5.6% to 5.8% for almost two years but has now dropped to a four-year low of 5.5%.

Full-time employment has now increased by around 271,000 persons since September 2016 and makes up the majority of the 335,000-person net increase in employment over the period’.

The one downside to today’s news has been that Australian wage growth remains stubbornly low, going against the presumed rise that comes with higher employment.

The more people are in work, the smaller the job pool is. This means that there is greater demand for fewer workers, forcing employers to boost the wages they offer to entice candidates in.

In other Australian news, there may be red faces in the government after New Zealand’s NZ First Party decided to form a majority coalition with Labour
While AU Prime Minister Malcolm Turnbull has congratulated Labour leader and new PM Jacinda Ardern, Foreign Affairs Minister Julie Bishop has previously stated that it would be ‘very difficult to build trust’ with a Labour government across the ditch.

Bishop has since given a message of reconciliation, which will potentially mend any fences that were damaged on her initial statement;

‘We have a very strong and deep relationship with New Zealand and I’m looking forward to working with the new government’.

Final Nail in the Coffin? Higher UK Borrowing Deficit Forecast on Friday

The week’s last major UK news could trigger further Pound losses; it pertains to the reported UK borrowing deficit in September.

On the month, expectations are for a deficit expansion to -5.7bn, which might bring a Pound slump. This is because there is just over a month left before the November budget announcement and a greater budget deficit will leave little room for manoeuvre by Chancellor Philip Hammond.

The next Australian Dollar news isn’t out until the coming Wednesday; this will cover reported inflation in the third quarter. If inflation increases significantly, the Australian Dollar could rise on higher hopes of a 2018 interest rate hike.
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