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Pound Australian Dollar (GBP/AUD) Exchange Rate Surges on Weak Australian Inflation

April 24, 2019 - Written by Frank Davies

Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Leaps as Australian Inflation Drops



The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate surged higher on Wednesday after the Australian consumer price index fell short of forecast.

Demand for the Australian Dollar diminished sharply after the first quarter consumer price index eased from 1.8% to 1.3%, rather than the 1.5% forecast.

With the headline inflation rate falling further below the Reserve Bank of Australia’s (RBA) 2% target the odds of an interest rate cut appeared to increase significantly.

As market risk appetite also remained limited this left AUD exchange rates exposed to significant downside pressure as confidence in the Australian outlook continued to deteriorate.

Easing UK Budget Deficit Shores up GBP/AUD Exchange Rate



GBP exchange rates also benefitted from news that the UK budget deficit had fallen to a 17-year low in March.

Although the figure still fell short of the Office of Budget Responsibility’s forecast for the fiscal year this was not enough to weigh down the Pound at this stage.

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As a lower level of government borrowing reduces the UK’s exposure to external risks the improvement encouraged investors to pile back into the Pound.

However, speculation that talks between the Labour leadership and Theresa May over Brexit could be on the verge of collapse helped to limit the boost to GBP exchange rates.

Improving Industrial Trends and Business Optimism May Boost Pound (GBP) Exchange Rates



The mood towards the Pound could improve further on Thursday, though, if April’s CBI industrial trends orders and business optimism indexes prove encouraging.

Forecasts point towards a modest uptick in industrial sector activity on the month, suggesting that the negative impact of Brexit-based anxiety has started to fade.

While the business optimism index looks set to remain firmly in negative territory any solid improvement on the -23 seen in March should give the Pound a boost.

If the data shows fresh signs of economic anxiety, however, this may see the GBP/AUD exchange rate giving up some of its recent gains.

Australian Dollar (AUD) Exchange Rate Upside Limited Unless Risk Appetite Improves



AUD exchange rates could struggle to return to a stronger footing in the days ahead, even so, as the impact of the weak inflation data persists.

As long as markets see higher odds of the RBA cutting interest rates in the near future the appeal of the Australian Dollar is unlikely to see any improvement.

However, a resurgence in market risk appetite could give AUD exchange rates something of a rallying point if the US Dollar falls out of favour.

If worries over the prospect of a further destabilisation of global trade ease the Australian Dollar could find some measure of support.
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