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GBP to AUD Exchange Rate Volatile as UK and Australian Data Disappoint Investors

August 22, 2019 - Written by James Fuller

Continuing the trend seen over the past couple of weeks, the British Pound to Australian Dollar (GBP/AUD) exchange rate has been fluctuating broadly today as investors digest the latest ecostats and anticipate the possibility of major central bank news in the coming days. Currency war fears have also worsened over the past couple of days, which has worsened the overall pressure on the Australian Dollar.

While GBP/AUD ultimately advanced last week, the pair saw notable fluctuations throughout the week. GBP/AUD opened this week at the level of 1.7920, and the pair has continued to fluctuate between lows of 1.7811 and highs of 1.7960. At the time of writing, GBP/AUD had tumbled back towards the week’s opening levels again due to today’s poor UK data.

Investors will be hesitant to make big movements on either currency in the coming day, as UK Prime Minister Boris Johnson will be holding meetings with EU officials over the weekend while Reserve Bank of Australia (RBA) Governor Philip Lowe will speak at the highly anticipated Central Bank Symposium at Jackson Hole.

GBP Exchange Rates Fail to Capitalise on Rival Weakness on UK Retail Fears Rise

The Pound had been climbing against the Australian Dollar since last night, despite no-deal Brexit fears bubbling away in the background.

UK Prime Minister Boris Johnson met with German Chancellor Angela Merkel yesterday and is meeting with French President Emmanuel Macron today.

These meetings are not expected to lead to any shift in stance from any of the leaders on Brexit. Fears that Johnson’s government could drive Britain to a no-deal Brexit persist and clouded over the Pound outlook.

However, Sterling was steadily rebounding until today’s UK retail data from the Confederation of British Industry (CBI) was published.

CBI’s distributive trades report for August was expected to edge higher from -16 to -11, but instead plummeted to a surprisingly deep contraction of -49.

It weighed on hopes that consumers were staying resilient amid no-deal Brexit uncertainty. According to Howard Archer, Chief Economist at the EY Item Club:

‘Admittedly, actual retail sales have recently tended to be stronger than indicated by ths CBI's survey and latest actual data from the ONS show retail sales held up pretty well in July.

Nevertheless, the serious weakness of the August CBI survey showing the sales balance at the lowest level since December 2008 at -49% is concerning.’

AUD Exchange Rates Weaker after Australian Data and Currency War Fears

Part of the Pound to Australian Dollar exchange rate’s gains since yesterday was due to weakness in the Australian Dollar, as the latest domestic data and global trade uncertainties weighed on the currency.

The Australian Dollar is a trade-correlated currency, and China is Australia’s biggest trade partner. As a result, the Australian Dollar has recently been sensitive to US-China trade war developments.

Overnight, the Australian Dollar reacted to news that the Chinese Yuan (CNY) was falling. This is being viewed by many analysts as a retaliation to US trade tariffs on China, and has worsened fears of a currency war.

According to Imre Speizer, Currency Strategist at Westpac:

‘The yuan’s being followed at the moment because if they depreciate their currency, then it’s expected other countries will follow suit and a currency war will ensue,

It’s seen as a response to the trade wars’

The Australian Dollar was also weakened by Australia’s CommBank PMI projections, which showed the services sector unexpectedly contracting.

GBP/AUD Exchange Rate Forecast: Jackson Hole Symposium and Brexit Developments in Focus

With all of this week’s notable UK and Australian data having been published now, the Pound to Australian Dollar exchange rate could see volatile movement into the weekend.

The Pound will be sensitive to Brexit developments and the Australian Dollar to trade war and central bank news, but with big news on those factors expected this weekend the pair may not move much tomorrow.

UK Prime Minister Boris Johnson will meet with EU officials like European Council President Donald Tusk this weekend, which could influence no-deal Brexit fears.

Perhaps the biggest news this weekend for GBP/AUD though, will be a Saturday speech from Reserve Bank of Australia (RBA) Governor Philip Lowe at the Central Bank Symposium at Jackson Hole.

If the RBA continues to avoid the more dovish stances taken by other major central banks, RBA interest rate cut bets will remain low and the Pound to Australian Dollar exchange rate could fall.
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