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Pound Australian Dollar (GBP/AUD) Exchange Rate Pushes Higher on Narrowed Australian Trade Surplus

January 7, 2021 - Written by Frank Davies

Narrowed Trade Surplus Fuels Pound Australian Dollar Exchange Rate Gains

A sharper-than-expected narrowing of the Australian trade surplus encouraged the Pound to Australian Dollar (GBP/AUD) exchange rate to push higher.

Although the trade balance remained in a state of surplus investors were still disappointed to see the figure narrow from A$6.58 billion to A$5.02 billion in November.

This suggests that trade conditions saw some material weakening during the fourth quarter, raising the risk of a weaker quarterly growth rate for the Australian economy.

With market risk appetite also limited in the wake of events in the US the potential for AUD exchange rate gains proved distinctly muted on Thursday.

While the UK construction PMI failed to pick up as forecast in December this was not enough to put any particular dampener on the buoyant GBP/AUD exchange rate at this stage.

Weaker US Labour Market Data Forecast to Offer Australian Dollar Boost

However, the mood towards the Australian Dollar could see fresh improvement ahead of the weekend if US labour market data continues to underwhelm.

After the surprise decline in the ADP employment change reading markets see a high risk of the non-farm payrolls report also showing a decline in December.

Evidence that the US labour market continued to weaken in the final month of 2020 would give investors fresh incentive to sell out of the US Dollar, offering the Australian Dollar a fresh rallying point.

If safe-haven demand weakens once again and a sense of risk appetite returns this could see the GBP/AUD exchange rate put back on a downtrend.

In the absence of any further Australian data releases this week, though, the Australian Dollar may struggle to find any significant traction against its rivals.

Growing market anxiety over the spread of the latest wave of Covid-19 infections around the world could also limit the appeal of the risk-sensitive Australian Dollar.

Slowdown in House Price Index May Limit GBP/AUD Exchange Rate Upside

Some confidence in the resilience of the UK housing market could weaken if Friday’s Halifax house price index release proves discouraging.

If the house price index shows a slowdown in growth on the month, as forecast, this could leave the Pound vulnerable to renewed selling pressure.

Unless the housing market shows sustained signs of holding up, even in the face of the ongoing pandemic, the GBP/AUD exchange rate may struggle to hold onto a positive footing.

Tensions over the likely impact of the latest UK lockdown could also continue to drag on the Pound for some days to come, given the growing risk of growth proving negative in the first quarter of the year.
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