GBP/AUD Drops after Mixed BoE Testimony

May 22, 2018 - Written by Tim Boyer

STORY LINK GBP/AUD Drops after Mixed BoE Testimony

Monday saw the Pound to Australian Dollar exchange rate open trading in the region of 1.7911 and close lower around 1.7714.

The losses in the GBP/AUD exchange rate were mainly caused by news that the UK will eventually leave the EU customs union, regardless of other agreements.

Last week brought news of an apparent breakthrough, when it was reported that an emergency ‘backstop’ had been agreed to keep the UK in a customs union if all else failed.

Following remarks from Boris Johnson during the weekend, however, Prime Minister Theresa May stressed that customs union membership wouldn’t be permanent.

Elaborating on plans for the customs union, Mrs May said:

‘If it is necessary, [customs union membership] will be in a very limited set of circumstances for a limited time, but we are working on achieving that commitment to Northern Ireland through our overall relationship with the European Union.’

The main benefit of customs union membership is that it would eliminate a hard border between Ireland and Northern Ireland.

As such, it was feared that by eventually leaving the EU customs union, the alternate UK arrangement may not provide a similar level of free movement between Ireland and Northern Ireland.

Daily Pound to Australian Dollar (GBP/AUD) Exchange Rate Update: Sterling Dips after BoE Testimony

The Pound (GBP) has lost ground to the Australian Dollar (AUD) today, falling slightly because of mixed comments from Bank of England (BoE) policymakers.

BoE officials were testifying to the Treasury Select Committee and UK economic assessments were both positive and negative.

In the former case, Monetary Policy Committee (MPC) member Gertjan Vlieghe advocated six interest rate hikes over the next three years.

This relatively hawkish outlook was soon countered, however, when Governor Mark Carney stated that Brexit has caused a £-900 drop in household incomes.

Although Mr Vlieghe supported a clearer course of forward guidance in the future, GBP traders have still been rattled by Mr Carney’s assessment of Brexit’s effect on incomes.

AUD/GBP Exchange Rate Rises on Positive Response to US Trading Truce

The Australian Dollar (AUD) has seen a slight rise against the Pound (GBP) today, although elsewhere the Australian currency has traded tightly against its currency peers.

This appreciation comes on a quiet data day for Australia, making international news the main AUD influencer.

Australian Dollar traders have continued to be reassured by news that the US and China have agreed a temporary truce in their trade war.

This lowers the chances of Australia being caught in the crossfire of a prolonged trading conflict, although it is unclear if the ‘ceasefire’ will hold up over the long term.

Weekly GBP/AUD Exchange Rate Forecast: Is GBP/AUD Volatility ahead on Inflation and Sales Data?

The Pound (GBP) may fluctuate against the Australian Dollar (AUD) over the rest of the week, when UK inflation and retail sales data is released.

In the former case, UK inflation rate figures for April will be released on Wednesday.

These are predicted to show an acceleration in monthly inflation compared to March, but a slowdown for the core year-on-year reading.

Such mixed results might not have much impact on Sterling, but unified growth or slowdowns could trigger significant GBP movement.

Accelerating inflation may weaken the Pound, as this would risk UK households once again facing restrictive ‘wage squeeze’ conditions.

On the other hand, if inflation falls across the board then Sterling could appreciate because of improved conditions for UK households.

Any GBP/AUD exchange rate losses could prove temporary, if Thursday’s retail sales readings show month-on-month growth.

Compared to March 2017, April’s annual sales activity is predicted to slow but month-on-month growth could still boost the Pound.

This is because the UK retail sales sector suffered in Q1 2018 due to poor weather – growth in April could restore confidence among GBP traders.

The next Australian economic data to watch out for will come early on Wednesday, when a measure of construction activity in Q1 2018 is released.

This is predicted to show an improvement compared to Q4 2017 with a shift from -19.4% to 1%.

Although a relatively small level of growth, such movement could still raise confidence among AUD traders and trigger an Australian Dollar advance.

Wednesday morning will also being a speech from Reserve Bank of Australia (RBA) Governor Philip Lowe.

Although a slim possibility, a statement by Mr Lowe supporting imminent interest rate hikes could cause the Australian Dollar (AUD) to rise against the Pound (GBP).

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TAGS: Pound Australian Dollar Forecasts