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Australian Retail Sales Smash Expectations, GBP AUD Exchange Rate Tumbles in Response

January 11, 2018 - Written by John Cameron

GBP AUD Exchange Rate Extends Fall on Gloomy Brexit Jobs Report

The Pound Australian Dollar (GBP AUD) exchange rate tumbled on Thursday as investors responded to a gloomy report regarding the possible impact of Brexit on the UK’s job market.

The analysis from Cambridge Econometrics asserted that a no-deal Brexit could result in the loss of half a million jobs and some £50bn in investment by 2030.

The report went on to conclude that every Brexit ‘outcome’ might be harmful, but that ‘the harder the Brexit, the more severe the economic damage could be’.

Analysts were quick to point out that these figures were indicative, however, with a huge number of factors liable to affect the ultimate outcome.

Nonetheless, the market response to this gloomy outlook was a notable loss in demand for the Pound.

Australian Dollar (AUD) Exchange Rates Bolstered by Surge in Australian Retail Sales

Australian Dollar (AUD) exchange rates were bolstered on Thursday by news that retail trade in Australia increased by 1.2% month-on-month in November, beating the previous period’s 0.5% rise and the market estimate of a 0.4% climb.

This predominantly resulted from growth in the purchase of household goods, clothing, footwear and personal accessories, figures that marked the strongest pace of growth since November 2014 and prompted traders to bid AUD higher on renewed consumer activity optimism.

It should be noted, however, that this optimism was quickly questioned by various analysts, with John Peters, Senior Economist at Commonwealth Bank of Australia pointing to poor numbers in underlying trends:
‘Despite better headline retail numbers, the underlying trend numbers do not yet signal any sustained pickup in retail spending activity by consumers’, Peters stated.

GBP AUD Exchange Rate Forecast: Australian Wages in Focus

The medium-term outlook for Australia’s economy could prove gloomy if wage growth doesn’t pick up.

The latest Australian wage release saw pay growth print at a disappointing 0.5% in the three months to the end of September, with any positive impact on the retail sector from employment growth largely negated by historically soft wage growth – something that could beget even more limp inflation readings in the months ahead.

This is important to consider because the Reserve Bank of Australia (RBA) is unlikely to have sufficient incentive to move for a rate hike this year unless factors like wage growth improve.

For the Pound, markets will be looking towards next week’s UK December inflation releases to carefully assess if a rate hike could be faster approaching than originally anticipated, though similar issues of limp wage growth and inflation currently afflict the UK.
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