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GBP to AUD Exchange Rate Climbs on Analyst Forecasts for Iron Ore and ?Aussie?

January 8, 2018 - Written by Toni Johnson

Despite UK political uncertainty and a lack of strong UK ecostats in recent sessions, the British Pound to Australian Dollar exchange rate advanced on Monday, regaining most of last week’s losses due to market concerns that the Australian Dollar may be in for a relatively flat 2018.

After opening last week at the level of 1.7280, GBP/AUD fluctuated and then closed the week at around 1.7234. On Monday afternoon however, the pair trended in the region of 1.7300, quickly rising above last week’s opening levels.

GBP Advances Despite Domestic Political Uncertainties

Despite some speculation that the UK government could be getting a minister for a ‘no deal’ Brexit, the Pound clawed back some gains against a weaker Australian Dollar on Monday.

As UK Parliament reconvened following the winter recess, UK Prime Minister Theresa May took the New Year as an opportunity to reshuffle her government cabinet in an effort to reassert authority following a messy 2017 for the Conservative Party.

The Pound saw fluctuations earlier in the day but generally had little trouble advancing against the ‘Aussie’ as investors became more comfortable that the reshuffle hadn’t considerably changed anything that would affect the current Brexit outlook.

On top of this, Sterling became more appealing due to news that the Pound volatility index had fallen to its lowest levels in over three years.

The market gauge which measures Sterling volatility against the US Dollar (USD) was trading around 6.6%, its lowest levels since November 2014, due to market expectations that the Pound would not see as many big shifts in the coming months.

According to Alessio de Longis, portfolio manager from Oppenheimer Funds;

‘Sterling has been dominated by Brexit-related headlines and the fact there is a bit of a constructive tone from both parties in recent weeks has removed some of the volatility premium from Sterling,’

Monday’s UK data, Halifax’s December house price report, was disappointing and fell short of expectations. Overall though the data had little notable impact on Pound trade.

AUD Sold on Expectations for Iron Ore Price Fall and Flat ‘Aussie’ in 2018

The Australian Dollar tumbled against most major rivals like the Pound and the US Dollar (USD) during Monday trade, as investors digested some dovish forecasts that could affect ‘Aussie’ trade throughout 2018.

Monday saw Australia’s government forecast that prices of iron ore, Australia’s most lucrative commodity, would fall around 20% this year overall as demand from China eases.

As China is Australia’s biggest trade partner and one of the largest consumers of Australian iron ore, expectations for China’s steel sector to shrink as the nation’s growth slows and it fights pollution issues could lead to weaker demand for the commodity overall in the future.

On top of this, the Australian Dollar was pressured by a Reuters poll suggesting that analysts predicted the AUD/USD exchange rate would be close to where it currently is at the end of 2018.

Predictions that the ‘Aussie’ could see relatively flat trade throughout 2018 weighed on the currency’s appeal on Monday and made it easier for GBP/AUD to advance.

GBP/AUD Forecast: Could Pound Continue to Advance?

Despite a lack of notable UK ecostats due for publication until Wednesday, the Pound could hold its Monday gains against the Australian Dollar unless Brexit concerns worsen again.

If UK Prime Minister Theresa May’s cabinet reshuffle ends up being poorly received or cause concerns about the Brexit process, this could cause some bearish Pound reaction throughout the week.

Pound investors will of course remain on the lookout for any news about the potential tone that the second phase of Brexit negotiations will take when they begin in March.

The Australian Dollar is unlikely to quickly recover its Monday losses, due to a lack of highly notable Australian ecostats due on Tuesday. Australian building permits data could influence the ‘Aussie’ slightly however.

The GBP/AUD exchange rate is more likely to be influenced by political news and risk-sentiment until Wednesday, when Australia’s NAB business confidence data will come in as well as Britain’s trade and production reports from November.

Australian retail data is due on Thursday. If this week’s Australian data all impresses investors it could bolster hopes of a more hawkish Reserve Bank of Australia (RBA) which could make the ‘Aussie’ more appealing again.
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