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GBP to AUD Exchange Rate Investors Await UK Retail Sales Report

January 18, 2018 - Written by Toni Johnson

Despite Australia’s latest job market report generally indicating that Australia’s job market remained strong until the end of 2017, the British Pound to Australian Dollar exchange rate avoided falls thanks to some comments from Bank of England (BoE) policymaker Michael Saunders.

After advancing from 1.7234 to 1.7323 last week, the GBP/AUD exchange rate has seen largely range-bound trade. Since Monday the pair has fluctuated within a tight region between 1.7275 and 1.7386.

GBP Supported by BoE Member Comments and ‘Soft Brexit’ Hopes

Since the year began, investors have been more optimistic on the Pound due to rising hopes that upcoming UK-EU negotiations will go smoothly and that the Brexit process will not end with collapse or a ‘hard Brexit’ as analysts have feared since the Brexit vote in 2016.

The latest optimism has mostly come from the EU side, amid reports that some EU officials are hoping to maintain strong ties with Britain after the Brexit process.

European Commission Leader Jean-Claude Juncker has also stated this week that if Britain regrets choosing Brexit he would accept the nation’s re-entry into the EU via ‘Article 49’.

Overall, the friendlier tone of EU officials boosted hopes that the second phase of talks, which will include transitional deal and trade deal discussions, will ultimately lead to a softer Brexit than feared in which Britain gets a respectable post-Brexit deal with the EU.

Sterling has also been supported by fresh comments from Bank of England (BoE) policymaker Michael Saunders this week.

On Wednesday, Saunders claimed he had a hunch that UK unemployment would fall lower than most economists expected, which would push wage rate growth to its fastest pace since the financial crisis.
His comments boosted speculation that the Bank of England could be pressured into taking a more hawkish stance on monetary policy within the coming year. According to Allan Monks from JP Morgan;

‘While he gives no clear indication of doing so, these comments raise the possibility of Saunders dissenting in favour of raising rates again at one of the next two meetings,’

AUD Strength Limited as Australian Job Market Report Finds Mixed Reaction

The Australian Dollar was unable to hold its ground against the Pound on Wednesday despite this week’s strong Australian data, and on Thursday GBP/AUD remained near the week’s opening levels.

While the Australian Dollar benefitted slightly from Australia’s relatively impressive December job market report, the data was mixed enough that the ‘Aussie’ was unable to capitalise.

This was because Australia’s key unemployment rate unexpectedly worsened from 5.4% to 5.5% in December. The worse unemployment rate was largely due to surprising jump in the participation rate from 65.5% to 65.7% but the unemployment rise still limited AUD strength.

Overall though, the report indicated that Australia’s job market was still performing robustly, boosting hopes that the job market would remain strong in 2018. The employment change figure came in at 34.7k, well above the expected 9k.

According to Gareth Aird from Commonwealth Bank it even boosts the chances of a 2018 interest rate hike from the Reserve Bank of Australia (RBA);

‘The final employment report of 2017 completed a phenomenal calendar year of monthly labour force releases. The big lift in employment over December once again bettered consensus, and once again the underlying detail was robust.

Labour market outcomes in 2018 will be critical to the timing of any potential move in the cash rate. Wages growth should gradually lift as underutilisation continues to recede, and this should put some mild upward pressure on inflation and inflation expectations.’

GBP/AUD Forecast: UK Retail Sales Report in Focus

The Pound is likely to take point in GBP/AUD exchange rate movement over the coming week amid a lack of notable Australian ecostats due for publication.

Britain’s December retail sales report, due for publication on Friday, could inspire Pound appeal if it beats expectations.

Analysts expects UK retail sales to have improved from 1.6% to 3% year-on-year but have worsened from 1.1% to -0.6% month-on-month. If UK retail sales beat expectations it would boost hopes that UK consumer activity was more resilient than expected last year.

If the data is largely unsurprising or has no notable effect on the Pound outlook though, the Pound to Australian Dollar exchange rate is likely to end the week near its opening levels.

Next week, GBP/AUD investors will be keeping an eye on Britain’s November job market report and Q4 Gross Domestic Product (GDP) projections, while Westpac’s December leading index report for Australia could affect the ‘Aussie’.
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