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GBP/AUD Exchange Rate Rises 0.3% as Hopes Rise for May UK Interest Rate Hike

April 20, 2018 - Written by James Fuller

The Pound to Australian Dollar (GBP/AUD) exchange rate saw an overall (if minor) rise on 19th April, with an advance from the opening level of 1.8227 to close around 1.8236.

The day’s main UK economic news was a set of data releases for retail sales in March. Levels of sales activity slowed, which initially prompted a sharp devaluation of the Pound.

Sterling saw a recovery against the Australian Dollar later in the day, when opinions shifted and the March results were written off as a symptom of poor weather during the month.

This consisted of the two ‘Beasts from the East’ that hit the UK during early and mid-March, bringing heavy snowfall and transport disruption.

In Australia, the Australian Dollar was most notably influenced by reports of a stagnant unemployment rate in March.

Original forecasts were for the jobless rate to drop from 5.5% to 5.4%, but the reading instead remained steady.

Trader reactions were mixed, with some forecasting that the unemployment rate still needed to fall to 5% before wage growth would be seen.

There were additional predictions that the jobless rate could continue to disappoint AUD traders going ahead, as shown by BIS Oxford Economics’ Sarah Hunter’s comments;

‘The coming downturn in the labour-intensive residential construction sector will be a drag, and we expect the labour market to maintain the current modest pace of growth, and add around 15,000 jobs a month over the next year’.

Pro-Rate Hike Remarks Boost Pound to Australian Dollar (GBP/AUD) Exchange Rate

The Pound began daily trading on 20th April making losses against the Australian Dollar, but has since staged a recovery and risen in the GBP/AUD pairing.

Initial losses were caused by comments made by Bank of England (BoE) Governor Mark Carney.

Speaking in Washington, Mr Carney suggested that a May UK interest rate hike was not a guarantee, despite the assumptions of some GBP traders.

Mr Carney additionally warned that the future course of UK rate hikes could be slower than expected, in part due to the uncertainties associated with the ongoing Brexit negotiations.

Responding to Mr Carney’s cautious remarks, Bloomberg Economics economists Jamie Murray and Dan Hanson said;

‘The economic data had been solid enough, we thought, to set a tightening next month in stone.

'But the explicit reference to meetings later in the year cuts the odds of a rate hike in May’.

Since then, the Pound has staged a recovery thanks to more recent remarks from BoE member Michael Saunders.

Mr Saunders’ remarks have contrasted with Mr Carney’s, suggesting that along with a May interest rate hike there could also be two rate increases in 2018.

Sparking a Pound to Australian Dollar appreciation, Mr Saunders said;

‘”Gradual” does not imply that the (BoE) Monetary Policy Committee (MPC) can only raise rates at a very low frequency, such as once per year.

'Nor does “gradual” mean that the MPC cannot tighten faster than markets price in’.

Despite the comparatively hawkish tone, Mr Saunders added that BoE policymakers were unlikely to explicitly signal when an interest rate hike would be likely.

Optimistic AU Growth Forecasts Fail to Trigger Australian Dollar to Pound (AUD/GBP) Exchange Rate Rally

The Australian Dollar (AUD) has slipped against the Pound (GBP) and seen additional losses against peers such as the Canadian Dollar and US Dollar today.

This deterioration comes from there being little high-impact AU data to positively influence the Australian Dollar.

The most recent news has been that a Reuters poll has returned the finding that steady economic growth is possible, as long as a trade war does not break out.

Fears about a US-China trade conflict have faded recently, but the concern is by no means a dormant one for Australian Dollar traders.

Pound to Australian Dollar Exchange Rate Forecast: Will GBP/AUD Rally on GDP Growth?

Barring any unexpected comments from Bank of England (BoE) policymakers in the week ahead, the Pound to Australian Dollar exchange rate (GBP/AUD) could be most strongly influenced by 27th April’s UK GDP data.

The initial estimates for Q1 2018 are expected to show a slight quarter-on-quarter decline, along with year-on-year stagnation at 1.4%.

Among other economic readings, GDP growth is seen as a deciding factor on whether the Bank of England (BoE) could raise UK interest rates in May.

If the GDP readings show unexpected growth then the GBP/AUD exchange rate could see a late-week rise.

On the other side of the pairing, the Australian Dollar (AUD) could advance against the Pound when Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent speaks on 23rd April.

Expectations for a near-term RBA interest rate hike are currently low, but Mr Kent could still provoke an AUD advance if he forecasts improving economic conditions.

The bigger news will be inflation rate readings for the first quarter, out on 24th April.

Year-on-year inflation is tipped to rise from 1.9% to 2%, which would reach the lower level of the RBA’s inflation target range.

Although this is unlikely to prompt an immediate response from RBA policymakers, the news could still inspire a brief Australian Dollar to Pound exchange rate rise.
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