Pound Australian Dollar (GBP/AUD) Exchange Rate Climbs as UK Borrowing Hits 11-Month Low

April 24, 2018 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Climbs as UK Borrowing Hits 11-Month Low

Sterling (GBP) Exchange Rates UP as UK Government Borrowing Hits Lowest Point in Over a Decade

The Pound to Australian Dollar (GBP/AUD) exchange rate climbed on Tuesday, supported by news that UK government borrowing plummeted to its lowest point in over 11 months and a below-forecast Australian inflation print.

According to the Office for National Statistics (ONS) the shortfall between how much the British government spent, and how much it earned from taxes in the last financial year came in at £45.2b, 8% lower than the previous 12 months and the smallest recorded since 2006/7.

It also quite comfortably beat the $50b target set in November by Finance Minister Philip Hammond.

Mr Hammond shared his thoughts on the news:

‘Thanks to the hard work of the British people, borrowing is the lowest in over a decade. Our economy is at a turning point with debt starting to fall and people's wages rising, as we build an economy that truly works for everyone’.

It should also be stressed, however, that concerns remain regarding lagging consumer spending and what it could mean for the UK’s economy.

Nonetheless, this news was ultimately positive and boded well for Sterling’s near-term outlook.

Australian Consumer Price Inflation Misses its Mark – Australian Dollar (AUD) Exchange Rates Encounter Pressure

Australian data disappointed in the early hours of this morning, with consumer price inflation for Q1 2018 holding at 1.9% year-on-year, below the forecast of 2% and the quarter-on-quarter reading falling from 0.6% to 0.4%.

This result reflected the sentiment of bank Governor Philip Lowe, who previously prognosticated that inflation will only gradually return to the midpoint of the Reserve Bank of Australia’s (RBA) target range.

It also bodes poorly for the rate hike outlook for 2018, with analysts now not expecting a hawkish move until next year.

Tamara Henderson from Bloomberg Economics shared this outlook:

‘Australia’s stable inflation in the first quarter defied upward pressures from a softer Aussie dollar and higher commodity prices. Inflation holding below the central bank’s target preserves spending power for households in support of the economic expansion. Bloomberg Economics still sees a rate hike by the Reserve Bank of Australia as an issue for 2019, not 2018’.

This news limited the upward potential of the ‘Aussie’ Dollar and left the GBP/AUD exchange rate firmly in Sterling’s favour.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: UK and US GDP in the Spotlight

The Pound Australian Dollar (GBP/AUD) exchange rate could become increasingly volatile towards the end of the week as markets respond to the Q1 GDP estimates for both the UK and the US.

Markets currently expect the UK’s headline year-on-year reading to hold at 1.4%, whilst the quarterly reading is expected to fall from 0.4% to 0.3%.

Any rise would further cement a May rate increase from the BoE and likely send GBP/AUD higher.

Across the pond, however, analysts are forecasting a marked fall in the US GDP growth rate for Q1 2018 from 2.9% to 2.2%.

If this occurs then it could curb demand for the ‘Greenback’, which should then allow the riskier commodity currencies to increase in value, thus pressurising the GBP/AUD exchange rate.

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