August 6, 2018 - Written by Frank Davies
STORY LINK GBP AUD Exchange Rate Struggles to Find Traction Ahead of RBA Meeting
Deteriorating market sentiment left the Pound Sterling Australian Dollar (GBP/AUD) exchange rate on a downtrend as fears over Brexit escalated.
Comments from international trade secretary Liam Fox prompted the Pound to slump sharply across the board, with investors spooked by his suggestion that the odds of a no deal Brexit are 60-40.
The threat of an exit via the cliff-edge weighed heavily on GBP exchange rates, especially as Bank of England (BoE) Governor Mark Carney has already issued a warning on the subject.
This overshadowed a moderate rebound in UK new car sales, suggesting that the domestic economy is likely to remain under pressure for the foreseeable future.
Pound Australian Dollar Exchange Rate Forecast to Benefit From Neutral RBA Meeting
July’s TD Securities inflation reading did little to bolster the appeal of the Australian Dollar, meanwhile.
As the index held steady on the year AUD exchange rates struggled to find any particular traction on the back of the data.
With domestic inflation still at the low end of the Reserve Bank of Australia’s (RBA) target range the upside potential of the Australian Dollar was naturally limited.
Lingering market worries over the increasing protectionism of the US also helped to keep the antipodean currency under pressure on Monday morning.
Investors are reluctant to favour the Australian Dollar ahead of Tuesday’s RBA policy decision, even though no change is forecast at this stage.
If RBA policymakers express continued confidence in the domestic outlook this could give AUD exchange rates a boost, however.
On the other hand, signs of increased caution regarding the Australian economy and global trade conditions may see the Australian Dollar trending lower across the board.
As analysts at TD Securities commented:
‘We note that the RBA's glass half full approach is not credible as wages remain tepid and wholesale funding issues persist. Further, with trade tensions still fluid between the US/China and AUD highly sensitive to CNH gyrations (where recent PBoC actions should slow but not halt the pace of depreciation), this antipode should remain on the defensive in the G10.’
Signs of weakness in the latest Australian construction PMI could also offer the GBP/AUD exchange rate a rallying point overnight.
While the role of the construction sector is somewhat limited a softer showing here would still offer the Australian Dollar little cause for confidence.
Brexit Worries to Keep Pound Exchange Rates Under Pressure Ahead of UK GDP Data
Brexit uncertainty is likely to keep the Pound on the back foot for some time yet to come, especially if there are no signs of progress towards an agreement.
As long as the threat of the UK leaving the EU without any deal in place persists the GBP/AUD exchange rate could struggle to return to a stronger footing.
Even so, an uptick in the Halifax house price index may give the Pound some degree of support on Tuesday.
Evidence of resilience within the UK housing market could encourage investors to buy back into the weakened Pound, in spite of lingering political jitters.
If prices fail to show an acceleration, however, GBP exchange rates are likely to come under renewed pressure.
The Pound could struggle to find any particular boost ahead of Friday’s much-anticipated gross domestic product data.
With markets keen to gauge whether the UK economy recovered some of its momentum in the second quarter this could limit the volatility of GBP exchange rates.
Unless investors see signs that the domestic economy is in a more robust state of health the Pound looks set to remain under pressure.
Any fresh comments on the subject of Brexit may dent the GBP/AUD exchange rate, meanwhile, as a lack of progress in negotiations continues to weigh on sentiment.
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TAGS: Pound Australian Dollar Forecasts