GBP AUD Exchange Rates Gain on Renewed Brexit Confidences

November 6, 2017 - Written by John Cameron

STORY LINK GBP AUD Exchange Rates Gain on Renewed Brexit Confidences

The Pound Australian Dollar exchange rate soared today, bolstered by a the possibility of a dovish Reserve Bank of Australia (RBA) rate decision tomorrow and filled with fresh Brexit related optimism after comments from UK Prime Minister Theresa May.

May Assuages Cliff-Edge Brexit Anxieties – GBP Exchange Rates Climb

Theresa May attempted to reassure business leaders on Monday morning when she talked to a conference of the CBI lobby group in London.

She urged businesses to regard the future outlook of the UK like ‘rational optimists’, whilst also asserting that there were ‘huge opportunities’ to be had for businesses in the coming years – no doubt referring to the open vacuum of fresh trade potential that will result.

She did, however, state that the UK needed to be realistic about how long Brexit negotiations could take, stating:

‘We should be excited by the possibilities which this new relationship presents for the future, just as we are realistic in acknowledging that it will take time to finalise. I have made clear that a strictly time-limited implementation period will be crucial to our future success. I know how important it is for business and industry not to face a cliff-edge and to have the time it needs to plan and prepare for the new arrangements’.

This acknowledgement sated the voracious appetite businesses have for some form of Brexit reassurance, sending demand for the Pound higher after last week’s fall. Whether this will continue on Thursday, however, when the next round of Brexit negotiations begin is yet to be seen.

Markets will most likely want some form of demonstrable progress (rather than assertions) to have been made before buying further into the Pound.

Australian Data Remains Mixed, GBP AUD Exchanges Higher

Data relating to the Australian economy continues to remain mixed, with last week’s retail sales figures flatlining and today’s latest TD Securities inflation reading proving positive.

Retail sales in Australia undermined any upward potential that the ‘Aussie’ Dollar held last week, printing at 0.0% in September, up from the previous period’s -0.5% contraction but far below the market expectation of a 0.4% gain.

These figures demonstrated that despite the solid employment figures, consumer’s wallets remain under pressure in Australia due to endemic low wage growth.

Paul Dales, Chief Economist at Capital Economics echoed this, stating:

‘This data showed that faster jobs growth is not offsetting the pressure on household incomes from low wage growth, rising utility bills, high debt and stagnating prices’.

In better news, the TD securities inflation reading inched ahead to 2.6% annually, up from 2.5% in the previous period.

The month-on-month forecast remained steady at 0.3%, however.

Whilst this figure may influence RBA considerations into rate hikes or reductions, Australia’s inflation remains outside of the bank’s target levels, leaving the chance of a hawkish shift in monetary policy tomorrow very minimal.

AUD Exchange Rates Remain Limited before RBA Rate Decision

Demand for the Australian Dollar remains limited in the build-up to tomorrow’s RBA rate decision, with October’s rate minutes having laid out the bank’s intentions to remain cautious into 2018.

On the data front, Australia’s employment figures are admittedly favourable, but despite strong employment gains over 2017 a pick-up in wage growth remains elusive, as does a pick-up in the currently limp inflation figure.

Because of this, markets do not expect the RBA to move for a rate hike any time soon, and with data remaining somewhat poor and inflation soft, the prospect of a rate hike before the 2nd half of 2018 is even questionable.

Michael Blythe, Chief Economist at Commonwealth Bank, shared this sentiment, stating:

‘We remain comfortable with our long-held view that the RBA will sit out the rest of 2017 and most of 2018’.

Whilst the BoE is admittedly also deemed dovish, following last week’s rate hike and the ongoing high levels of inflation it is to a lesser extent than the RBA, leaving the outlook for GBP AUD favourable.

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