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Pound Australian Dollar (GBP/AUD) Exchange Rate Surges as Market Risk Appetite Diminishes

March 16, 2018 - Written by John Cameron

Pound (GBP) Exchange Rates Climb against Commodity Currencies on Ongoing Trade War Concerns

The Pound Australian Dollar (GBP/AUD) exchange rate climbed on Friday, capitalising on fresh weakness amongst commodity currencies in light of escalating tensions regarding trade between the US and China, and the recent dovish attitude of the Reserve Bank of Australia (RBA).

The appointment of Larry Kudlow as US President Trump’s new Economic Advisor was of particular concern for ‘Aussie’ traders, with Mr Kudlow not only echoing calls for a tougher trade stance against China, but also calling for a ‘coalition of the willing’ to better confront them on trade.

Beyond this, Mr Kudlow pointed out that the Trump administration is actually readying a larger round of tariffs against Chinese imports, asserting that ‘China needs a comeuppance on trade, I believe that’.

Whilst Australia is exempt from President Trump’s recent tariff measures on steel and aluminium, markets are still greatly concerned that a retaliatory response from China could further escalate into massive tariffs and sanctions globally, an event that could minimise their effective export market.

Mr Kudlow’s comments added fuel to this fire, and whilst the threat of a trade war is mere speculation, risk appetite was still notable diminished in light of this news.

Construction Giant Berkeley Dismisses Government Call for More Houses – GBP Unperturbed

Today is, once again, a quiet data day for the UK, but Sterling continued to purchase against the majors on the back of an optimistic forecast from UK Chancellor Philip Hammond earlier in the week, and the aforementioned drop in global risk appetite.

In notable news today the UK construction giant Berkeley shrugged off government pressures to build a larger amount of houses, asserting that ‘market constraints’ were making it impossible to boost the housing supply.

Indeed, Berkeley pointed to economic uncertainty, the complexity of Britain’s planning system, current mortgage lending limits, and changes to the rules for buy-to-let landlords as a string of factors preventing higher levels of construction.
Berkeley stated:

‘The market conditions in London and the South East are unchanged from the first half with home movers and downsizers continuing to be constrained by high transaction costs, the 4.5x income multiple limit on mortgage borrowing and prevailing economic uncertainty’.

This news boded poorly for the UK’s housing crisis, and UK Prime Minister Theresa May’s efforts to move more young people from renting to the property ladder.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: EU Brexit Summit in the Spotlight

The general outlook for the Pound Australian Dollar (GBP/AUD) exchange rate is currently mixed, with next week’s run of highly significant UK data prints and the EU Brexit summit liable to encourage a great deal of volatility.

Markets will be closely assessing the UK’s inflation and wage growth figures, with a rise in either liable to make-the-case for a rate hike from the Bank of England (BoE) in May.

If this occurs then Sterling could receive a shot in the arm.

Beyond this, UK Brexit Secretary David Davis is flying to Brussels to meet with EU Chief Negotiator Michel Barnier, an event expected to reveal the latest on the Brexit negotiation front.

Markets are still skittish at the possibility that impasses on the subject of the Irish border will remain and that trade talks will be delayed even longer, however.

Indeed, if this proves the case then the GBP/AUD exchange rate could come under fresh pressure.
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