June 18, 2018 - Written by Toni Johnson
STORY LINK BCC Growth Forecast Downgrade Triggers GBP/AUD Exchange Rate Decline
Last week, the Pound to Australian Dollar exchange rate opened in the region of 1.7638 and rose to close higher around 1.7838.
This appreciation was caused by the news that the US Federal Reserve had decided to hike interest rates, which strengthened the US Dollar and devalued the AUD.
Falling Confidence after BCC Forecasts Triggers GBP/AUD Exchange Rate Losses
The Pound (GBP) has fallen by -0.3% against the Australian Dollar (AUD) today, following a series of gloomy economic forecasts from the British Chambers of Commerce (BCC).
BCC economists have warned that UK economic growth might slow in 2018 and 2019, from 1.4% to 1.3% and from 1.5% to 1.4% respectively.
Identifying the headwinds against the UK economy at present, BCC Head of Economics Suren Thiru said:
‘While Brexit uncertainty and the weakness in Sterling have weighed on overall UK growth, it is the failure to deal with the longstanding structural issues from weak productivity to the deep imbalances in the UK economy that continue to undermine the UK’s growth potential.
‘The risks to the outlook are on the downside. A messy departure from the EU would likely slow UK GDP growth further over the medium term.
'The prospect of an escalating trade war is now a key downside risk to our forecast as it could mean much weaker export and business investment growth than implied by the current forecast.’
AUD/GBP Exchange Rate Gains Mask Wider Australian Dollar Losses on Trade Tensions
The Australian Dollar (AUD) has risen by 0.3% against the Pound (GBP) today, although against other currencies the AUD has traded tightly or made minor losses.
With that in mind, today’s AUD/GBP exchange rate rise is primarily down to the weaker Pound rather than any Australian Dollar strength.
The latest limiting factor on AUD movement has been the concern that there could be collateral damage to Australia if the US-China trade war continues.
After fresh US tariffs against the import of Chinese goods was announced last week, Australian Foreign Minister Julie Bishop said:
‘Free and open trade and investment is of great benefit to our country and the world.
It's a position that we have made very clear to our American friends and we'll continue to promote it.’
Emphasising the potential damage that continued escalations in tariffs could cause, Labor party Trade Spokesman Jason Clare warned:
‘This is not good – no one wins from a trade war. The US and China make up almost half the world’s gross domestic product.
'If this escalated into a full-blown trade war, everyone will suffer – including us.'
GBP/AUD Exchange Rate Forecast: Will Pound to Australian Dollar Losses Continue on RBA Minutes?
There will be a major UK economic event on Thursday this week, but before then the Pound to Australian Dollar (GBP/AUD) exchange rate is most likely to be affected by AU news.
Specifically, Australian Dollar exchange rates could be affected by Reserve Bank of Australia (RBA) minutes out on Tuesday, followed by a speech from RBA Governor Philip Lowe on Wednesday.
Rounding off this trio of RBA events, Thursday will bring the central bank’s latest economic bulletin.
Across these three events, if it looks like the RBA’s economic outlook is improving then the Australian Dollar could rise further against the Pound.
The RBA has held off on raising interest rates in the past because of uncertainty about wage growth; if RBA officials believe that higher salaries are incoming then the AUD could rally.
The week’s main UK economic news will also concern central bank activity, when the Bank of England (BoE) Monetary Policy Committee (MPC) meets at noon on Thursday.
BoE policymakers aren’t expected to adjust interest rates from 0.5%, but there may still be a Pound to Australian Dollar exchange rate rise when the BoE’s minutes are released.
If there is any suggestion of a 2018 BoE interest rate hike taking place then the Pound could rally against the Australian Dollar; current estimates are for a hike as soon as August.
In addition to a potential boost from the BoE’s minutes, Pound Sterling may also rally if BoE Governor Mark Carney backs higher interest rates in the coming months.
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TAGS: Pound Australian Dollar Forecasts