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GBP to AUD Dollar Exchange Rate Sees Modest Gains as Risk-Sentiment Weakens

April 12, 2018 - Written by Minesh Chaudhari

Despite a lack of supportive UK data in recent sessions, the British Pound to Australian Dollar (GBP/AUD) exchange rate has advanced slightly. This has been largely due to a stronger US Dollar (USD) making risky currencies like the Australian Dollar less appealing.

Could GBP/AUD be on track for a week of limited changes? Last week saw GBP/AUD climb over a cent from 1.8244 to 1.8359, but this week the pair briefly touched on a low of 1.8240 before beginning to recover again. At the time of writing on Thursday, GBP/AUD trended near the level of 1.8350.

GBP Advances Despite Wednesday’s Underwhelming UK Data

Investors have had little reason to buy the Pound this week besides market hopes that the Bank of England (BoE) will hike UK interest rates again as soon as next month’s May policy decision.

BoE interest rate hike bets helped the Pound remain more appealing than risky rivals like the Australian Dollar, but Sterling gains were still limited by this week’s underwhelming UK ecostats.

Wednesday saw the publication of most of this week’s most notable UK datasets and many of them came in lower than expected.

Britain’s February trade balance did beat expectations slightly, coming in at £-0965b rather than only lightening to the forecast £-2.6b. The previous figure was also revised higher, from £-3.074b to £-2.949b.

However, all the other notable stats fell short of forecasts. Industrial production and manufacturing disappointed investors in February in both month-on-month and year-on-year prints.

On top of this, NIESR’s latest UK Gross Domestic Product (GDP) estimate for Q1 2018 was worse than analysts expected too. The figure was forecast to come in at 0.3% but only reached 0.2% - half of Britain’s 0.4% growth in Q4 2017.

Still, despite the underwhelming data, BoE interest rate hike bets remained generally strong and analysts still expect the bank to hike rates next month too.

According to analysts from MUFG;

‘We do not expect the MPC (Monetary Policy Committee) to be swayed by the probable slowdown in real GDP in Q1. Wage data next week will be more important for MPC deliberations and nearly all wage data points to upside risks,’

Overall, underlying factors like BoE bets and Brexit hopes are keeping the Pound appealing which is helping it avoid losses.

AUD Appeal Limited by Disappointing Australian Ecostats

Australian data published in recent sessions has made investors hesitant to buy the Australian Dollar too much, despite brief boosts in market demand for risky trade-correlated currencies.

Australian confidence surveys disappointed this week, with NAB’s March business confidence report coming in at 7 rather than the expected 12 and Westpac’s April consumer confidence index slipping from 103 to 102.4.

Thursday’s Australian consumer inflation expectations result was disappointing too, slipping from 3.7% to 3.6%. This worsened concerns that Australian inflation was still too subdued to pressure any hawkishness out of the Reserve Bank of Australia (RBA) any time soon.

The Australian Dollar’s appeal was also limited by a resurgent US Dollar (USD).
As the US Dollar became more appealing following weeks of political uncertainty and Federal Reserve interest rate hike bets rose, the Australian Dollar weakened and this made it easier for GBP/AUD to recover.

GBP/AUD Forecast: Key Job Market Data Due Next Week

If the Pound’s Thursday afternoon recovery is sustained, the Pound to Australian Dollar exchange rate could end the week above its opening levels.

On the other hand, if risk-sentiment improves again or if there is strong trade or commodity news, the Australian Dollar could see some late-week resilience and push GBP/AUD lower again.

The Reserve Bank of Australia (RBA) will publish its latest financial stability report on Friday, but this is unlikely to have a notable effect on Australian Dollar trade unless the RBA monetary policy outlook changes in any notable way.

Instead, GBP/AUD investors are likely to anticipate next week’s data.

Next week will see the publication of key job market data for both Britain and Australia.

UK job market stats for the three months into February will be published on Tuesday, followed by Australia’s March job data on Thursday.

British inflation data is also likely to be influential next week. March’s UK inflation rate will be published on Wednesday and is forecast to have risen from 2.7% to 2.8% year-on-year.

If UK inflation falls short of forecasts, Bank of England (BoE) interest rate hike bets could fall and GBP/AUD could weaken.
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