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Pound to Australian Dollar Exchange Rate Rallies as Australia Suffers Worse-than-Expected Drop in GDP

December 5, 2018 - Written by John Cameron

Australia’s latest gross domestic product (GDP) figures showed disappointing results as there was only 0.3% growth in Q3 compared to last quarter where the figure stood at 0.9%.

Despite predicted annual GDP growth of 3.3% the figure fell to 2.8% in the third quarter, the weakest pace in two years, which has aided Sterling in pushing back against the ‘Aussie’.

As the Reserve Bank of Australia (RBA) predicted that GDP would grow 3.5% on average both this year and next, the data today casts doubt over the next official interest rate being as high as the bank is currently expecting.

Despite the disappointing Markit services PMI from the UK, which showed a worse-than-expected fall from 52.2 to 50.4 against an expected increase, it did little to stop Sterling from rallying against the Australian Dollar.

Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Volatile Yesterday as Carney Warns UK Food Prices Could Increase by 10%

The Pound Sterling Australian Dollar (GBP/AUD) exchange rate remained volatile over the trading session on Tuesday.

Sterling began to rise after the advice from European Court Justice Advocate General, Manuel Campos Sánchez-Bordona was released yesterday morning, signalling that there was a possibility for the UK to change its mind on Brexit.

The Advocate General’s advice stated that if a country is able to decide to leave the European Union, then it should also have the power to change its mind without the consent of any other member states during the two-year exit process specified in Article 50 of the Treaty of the European Union.

The pairing did suffer some losses into the afternoon with the Bank of England (BoE) Governor Mark Carney’s statements in which he claimed there would be an increase in the average food shopping bill of 10% if there is a no-deal Brexit, with this figure only rising to 6% if there is a more organised exit.

Australian Dollar (AUD) Exchange Rates Volatile Yesterday after RBA Rate Decision

The Australian housing market continues to suffer, with home prices in Sydney showing a decline for 16 consecutive months, falling by 9.5% and making this slide the steepest in the past three decades.

The Australian building permits figures have also shown a decline in October, sliding further than expected to -1.5% compared to the previous month where the figure sat at 5.5%, aiding Sterling in making gains on the Australian currency.

At yesterday’s meeting the RBA kept interest rates unchanged at 1.5% in December as forecast, although this was undermined by the banks stating:

‘Growth in household income remains low, debt levels are high and some asset prices have declined.’

Concerns were also raised about slowing global growth, allowing the Pound to claw back some of its previous losses.

GBP/AUD Outlook: AUD to be Bolstered on Positive Data Releases?

Thursday will see a lot of data releases from Australia including retail sales figures for October, which are forecast to remain steady at 0.2%, and if this is the case, or if the figure is higher than expected, the ‘Aussie’ could push back against the Pound.

There is also an RBA speech scheduled for tomorrow morning, and depending on the tone of the speaker, if the bank continues with its dovish tone Sterling could continue making gains on AUD.

With the lack of any notable British data towards the end of this week’s session, it is likely that Brexit will remain the main catalyst for movement in the UK currency.

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