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Pound to Australian Dollar Exchange Rate Forecast to Rally on UK Inflation Rate Slowdown

April 17, 2018 - Written by James Fuller

On 16th April, the Pound to Australian Dollar (GBP/AUD) exchange rate saw an overall advance, having opened trading in the region of 1.8330 and closed around 1.8448.

This GBP/AUD rise was mainly down to Pound trader optimism about the week’s UK economic announcements - the hope was that they could raise the chances of a Bank of England interest rate hike in May.

For Australian Dollar traders, economic sentiment was less positive, resulting in an AUD/GBP exchange rate decline.

The primary concern was an external one, with AUD traders remaining anxious about a prolonged economic clash between the US and China.

The issue at hand is that as a major trading partner of both the US and China, Australian could be caught in the crossfire if trade relations deteriorate.

Although fears about an economic conflict diminished over the previous week, on Monday they leapt to the fore again when President Trump accused China of currency devaluation.

Responding to broader US economic actions against China (and alarming AUD traders in the process), Chinese Foreign Ministry spokesperson Hua Chunying said;

‘If the US continues to act recklessly…we stand ready to show our sword, and fight to win this battle to defend multilateralism and free trade’.

Pound to Australian Dollar Exchange Rate (GBP/AUD) Dips as UK Wage Growth Stats Spark Confusion

The Pound (GBP) has seen a minor loss against the Australian Dollar (AUD) today, despite the news that the pace of UK wage growth overtook the rate of inflation in February.

Wages rose by 0.1% above the level of inflation during the month, news that had a mixed reception among Pound traders.

The positive interpretation was that this could be the start of continued growth in wages above the rate of inflation, effectively removing current UK wage squeeze conditions.

Less optimistically, however, TUC General Secretary Frances O’Grady observed that;

‘Wage growth is still weak. Workers are £14 a week worse off than they were in 2007 – with pay packets not expected to return to their pre-crisis level until 2025.

‘The government must get the economy working again for working people’.

Australian Dollar to Pound Exchange Rate (AUD/GBP) Advances on Higher Employment Forecast

The latest AUD/GBP exchange rate rise has been primarily caused by the Pound falling in value, rather than any particular supportive Australian data.

The latest Australian economic data hasn’t been especially inspiring, showing another cautious run of Reserve Bank of Australia (RBA) minutes.

Summarising the RBA policy document, Bill Evans of Westpac Bank said;

‘There appears to be a less euphoric assessment of the labour market, while hints that the growth forecast will be lowered are clear.

‘Developments in financial markets associated with tightening global liquidity are noted but no implication is offered.

‘While the RBA’s rate outlook is consistent with their forecasts, the risks to that outlook continue to accumulate.

‘Emphasising that progress towards lower unemployment and higher inflation will “be only gradual” appears to be a clear signal that the Bank is undecided at this point and will require quite some time before it can be confident with its view’.

GBP/AUD Exchange Rate Forecast: Chance of Pound to Australian Dollar Exchange Rate Rally on UK Inflation Rate Slowdown

The Pound to Australian Dollar (GBP/AUD) exchange rate could see a sharp rise on 18th April, when UK inflation rate figures for March will be released.

Forecasts are currently polarised on whether inflation will have risen or fallen during the month; either outcome could provoke significant fluctuations in Pound exchange rates.

On the negative side, higher inflation in the UK could erase the positive implications of the latest wage growth data as it might mean that consumers once again face wage squeeze conditions.

More supportively, however, a drop in unemployment rates will increase the chances of the UK seeing an eliminated wage squeeze for two months in a row when the next wage growth stats are released.

As such, the Pound to Australian Dollar exchange rate could fall in the former case, but rise to the best levels of the week in the latter.

The next high-impact Australian economic data will come out on 19th April, consisting of the unemployment rate reading for March.

This ecostat might trigger an Australian Dollar to Pound (AUD/GBP) advance if it shows an as-expected drop in the unemployment rate, from 5.5% to 5.6%.

Lower unemployment will increase the odds of the Reserve Bank of Australia (RBA) considering an interest rate hike in the future, although a faster pace of AU wage growth is also seen as a necessity for this action.
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