Update 2: Pound Australian Dollar Exchange Rate Rebounds 0.5% on Calls for 2nd Brexit Referendum
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate recouped previous losses on Friday as the Pound broadly strengthened in response to speculation that there could be a second Brexit Referendum.
Former UKIP leader Nigel Farage’s surprising suggestion that another Brexit vote should be held gave rise to hopes that the UK might be able to avoid breaking from the EU’s single market.
The Pound accordingly rallied against all the majors bar the Euro, with the interbank GBP/AUD exchange rate hitting a high of AU$1.72.
According to The Guardian; ‘On Friday, [Farage] said he was calling on the leave side to prepare for a second vote because of the likelihood that one would be brought about when, as he expected, parliament rejected the deal eventually struck with the EU.’
Update 1: Surging Consumer Spending Sends Australian Dollar (AUD) Exchange Rates Higher
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate fell by half a cent during the Australasian session as the ‘Aussie’ was buoyed by forecast-smashing retail sales data.
The Australian Dollar rallied across the board as Australian retail sales came in at 1.2% month-on-month in November, significantly higher than the forecast increase of 0.4%.
GBP/AUD dropped 0.5% while USD/AUD slipped 0.3% and EUR/AUD shed 0.4%.
The retail sales surge was the most significant for five years and was driven by both Black Friday sales and iPhone purchases.
According to Bloomberg; ‘The result is a turnaround on a weak third quarter and suggests a record-run of full-time hiring and low interest rates may be encouraging consumers. The sustainability of the recovery is clouded by record-high debt carried by Australian households, at 200 percent of income, and anemic wage growth.’
Speculation about Brexit Talks in Germany Sends Pound to Australian Dollar Exchange Rate Lower
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has fallen despite some positive trade and industry data from the UK today.
Appetite for the Pound remains weak as markets wait to hear if Chancellor of the Exchequer Philip Hammond and Brexit Secretary David Davis have made any progress in Germany as they undertake a charm offensive to try and raise support for a Brexit deal that gives special protection to the UK financial services industry.
Hammond and Davis hold strongly opposing views regarding Brexit, but the pair have united ahead of trade talks (which are likely to begin March) in order to press for a bespoke deal for the UK when it finally quits European Union.
In a joint column for newspaper Frankfurter Allgemeine, Hammond and Davis state;
‘When we leave the European Union, we will leave the customs union and single market, but in agreeing a new model of co-operation, we should not restrict ourselves to models and deals that already exist.’
‘Instead we should use the imagination and ingenuity that our two countries and the EU have shown in the past, to craft a bespoke solution that builds on our deeply integrated, unique starting point to maximise economic co-operation, while minimising additional friction.’
Largely Positive UK Output, Trade and Growth Data Fails to Boost GBP/AUD Exchange Rate
Today’s UK economic data has largely printed positively, but this has failed to deliver a boost to the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate.
Industrial production ticked up to 0.4% month-on-month as expected in November, while year-on-year production beat forecasts for 1.8% growth to clock in at 2.5% after October’s output figure was revised up to 4.3%.
Manufacturing production posted better-than-expected 0.4% month-on-month growth, while annualised output slowed from 4.7% to 3.5%, instead of to the forecast 2.8%.
While the trade deficit unexpectedly widened in November, on a three monthly basis the shortfall in exports minus imports actually improved, as did the year-on-year figure.
The latest National Institute for Economic and Social Research (NIESR) GDP estimate for the three months to December also surprised after coming in at 0.6% instead of rising from 0.4% to 0.5% as economists had expected.
None of this was enough to incentivise markets to return to the Pound, largely because a poor Brexit trade deal could cause significant harm to trade and production in the long-term.
Risk Appetite Boosts Australian Dollar vs Sterling despite Weaker-than-Expected Chinese Inflation Data
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has fallen despite the latest Chinese consumer price index figures disappointing after showing that the pace of price growth rose from 1.7% to 1.8% in December, instead of to 1.9% as forecast.
While this points to slightly weaker-than-expected consumer demand within the economy of Australia’s largest trading partner, the fact that inflation still rose has prevented any AUD losses as a result.
The Australian Dollar is also finding support from rising market risk appetite today, with more stable currencies such as the Pound, Euro and US Dollar all experiencing weakness ahead of major data releases or on the back of political and economic concerns.
OECD Findings on Benefits of Corporate Tax Cuts Boost AUD Rates
Research from the Organisation for Economic Cooperation and Development (OECD) has further helped AUD to undermine the Pound Sterling to Australian Dollar exchange rate today.
According to the OECD, cutting company tax levels does not, as many have argued, unfairly favour those at the top of the income spectrum, instead providing benefits to people at all income levels.
Cutting company tax is on the agenda of Australian Treasurer Scott Morrison for this year - a prospect that interests markets, as it may make the Australian economy more competitive and improve growth.
However, it remains unclear whether this research alone will be enough to convince the many detractors of the tax cut that it is a justifiable and beneficial policy tool.
Pound Australian Dollar Exchange Rate Forecast to Recover if BoE Surveys Ease Debt Fears
Low-impact Australian retail sales data will have an early chance to cause some fluctuation for the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate when it’s released shortly after the turn of midnight tomorrow.
However, the day’s main data release will be the UK’s Bank of England (BoE) Credit Conditions and Bank Liabilities Surveys, which will assess the health of the financial system and could therefore cause some jitters on the market.
In recent months, economists have started to worry UK households may be borrowing more money on credit in order to continue spending at the same pace in the face of rising inflation.
Therefore, signs that moneylending is being restricted or that household debt is sustainable could boost the Pound.
Signs that banks are being too reckless with their lending, however, could cause significant volatility for GBP/AUD.