Pound to Australian Dollar Exchange Rate Trades Tightly on Continued Brexit Concerns

January 17, 2018 - Written by David Woodsmith

STORY LINK Pound to Australian Dollar Exchange Rate Trades Tightly on Continued Brexit Concerns

The Pound to Australian Dollar exchange rate made a marginal dip on Tuesday’s trading session, although for the most part GBP/AUD pairing movement was static.

Sterling opened trading in the region of 1.7316 on Tuesday morning, later falling to the region of 1.7312 by the close of trading.

Pound traders focused primarily on inflation rate data for December 2017, which slowed for both year-on-year readings during the month.

There was a slight rise in month-on-month inflation, but GBP traders were mainly worried that slowing inflation could mean reduced chances of Bank of England (BoE) interest rate hikes in 2018.

Taking a long-term view on the situation, Aberdeen Standard Investments Chief Economist Lucy O’Carroll said;

‘What matters most for the long-term health of the UK economy is improving its productivity performance.

If we can do that then the BoE may be able to keep rates low for a lot longer. But on recent experience, improving productivity is much easier said than done’.

On the other side of the pairing, the ANZ-Roy Morgan weekly consumer confidence index rose to a four-year high.

The weekly reading was especially supportive because while the Australian holiday season usually causes higher confidence, analysts eliminated this bias as a possibility.

After the data came out, ANZ Head of Australian Economics David Plank said;

‘The rise in confidence is quite encouraging and is consistent with the positive data out on building approvals and retail sales.

Last week, we noted a positive seasonal bias to the first reading of the year.

There is no clear seasonal bias in the second week, suggesting that the improvement in confidence this year may be more than just an empty resolution’.

Pound to Australian Dollar Exchange Rate Slips after Mutual Damage Brexit Forecast

In the wake of Tuesday’s major inflation rate figures, the Pound has traded in a narrow range against the Australian Dollar.

Amid claims that a ‘hard Brexit’ would cause significant UK economic damage, there are also claims that this outcome would be similarly injurious to the wider EU.

Analytics company Oxford Economics has forecast that EU supply chains could be damaged in the event of the UK crashing out of the multinational union, emphasising the dangers of this type of withdrawal.

Oxford Economics has forecast that after ‘hard Brexit’;

‘The supply chain impacts will lead a loss in collective gross output of the remaining EU countries of up to €62bn or 0.3pc below our baseline forecast in 2020, in addition to the €50bn or 0.2pc of gross output lost due to the direct impacts.

[This will] mark a significant slowdown in economic activity’.

The latest Brexit news has actually implied reduced chances of ‘hard Brexit’, with Dutch and Spanish Finance Ministers reportedly favouring the UK retaining ties to the EU after leaving.

Officials from both nations have played down the reports, but as the Pound rose sharply on the news, this implies that traders favour a less traumatic exit from the multinational union.

Australian Dollar to Pound Exchange Rate Flat after Minor Confidence Rise

Following the ANZ-Roy Morgan consumer confidence reading, the Australian Dollar has also been affected by a Westpac consumer confidence release more recently.

This has shown a 1.8% rise in the index for January, from 103.3 points to 105.1.

Westpac Senior Economist Matthew Hassan stated that while positive, this result was unlikely to inspire rampant spending;

‘Some of the survey details suggest there's still some lingering weakness, particularly around family finances, that is likely to see consumers still quite restrained’.

Imminent BoE Speech could Lead to Pound Advance

The next UK economic event which could affect the Pound will be a speech from Bank of England (BoE) official Michael Saunders.

Saunders is a member of the BoE’s Monetary Policy Committee (MPC), so he has a vote in each interest rate decision made by the bank.

If Saunders strikes an optimistic tone with regard to the UK’s economic health, the Pound could appreciate against the Australian Dollar.

On the other hand, if he doesn’t mention economic stability or suggests that the UK is in danger of further instability then the GBP/AUD exchange rate could decline.

Thursday’s main Australian data will come early, consisting of unemployment rate and employment change figures for December.

On the month, expectations are for a rise in employed persons but no change in the current 5.4% unemployment rate.

A surprise reduction in unemployment could benefit the Australian Dollar, leading to an AUD/GBP exchange rate rise.

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TAGS: Pound Australian Dollar Forecasts