The Pound to Australian Dollar exchange rate lost almost four cents over the course of last week as increased demand for risk-correlated currencies boosted the ‘Aussie’.
GBP/AUD remains trending in the region of a three-year low.
Pound (GBP) Limp as Hard Brexit Concerns Persist
Last week’s British economic calendar was fairly quiet, but Sterling movement was largely dictated by ‘hard Brexit’ fears, with the prospect of the UK losing access to the single market causing Pound to languish at multi-year lows against AUD, EUR, USD, NZD and CAD.
Not all data was impressive either. Britain’s August construction scores from the Office for National Statistics (ONS) disappointed, surprising investors with a contraction of -1.5% due to a drop in infrastructure projects. As the figures were largely unrelated to the Brexit vote, Sterling was little effected by the result.
Australian Dollar (AUD) Sturdy after Last Week’s Risk-Rally
While the Australian Dollar slipped from its highest levels against the Pound on Monday, demand for the risk-correlated currency remained solid in the new week’s trade session as commodity prices continued to impress traders.
Various factors in the foreign exchange market bolstered demand for risky currencies last week, such as strengthening prices in commodities like oil, and slightly lower bets of monetary policy tightening from the Federal Reserve.
Prices of iron ore, Australia’s most lucrative commodity, also continued to impress – holding near their best levels. However, with some analysts predicting that iron ore could plunge soon, the Australian Dollar was slightly weaker than some of its risky peers on Monday.
GBP/AUD Forecast: Reserve Bank of Australia Could Offer ‘Aussie’ Continued Support
Despite the Australian Dollar remaining highly overvalued, this week’s Reserve Bank of Australia (RBA) news could actually keep the ‘Aussie’ supported if it continues its recent trend of indicating that Australian interest rates will be frozen long-term.
RBA Governor Philip Lowe is due to make a speech early in Tuesday’s Asian session, followed by the publication of the RBA’s October meeting minutes. This means that the Australian Dollar will spend Tuesday trade reacting to long-term RBA bets.
As for the Pound, Tuesday’s European session will see the publication of Britain’s highly anticipated September Consumer Price Index (CPI) report.
Inflation is expected to have improved to 0.9% year-on-year, largely sparked by the Brexit vote causing a drop in GBP value and increasing consumer prices. The Bank of England (BoE) has previously stated that this is expected, and as a result will not be altering monetary policy if inflation reaches the bank’s 2.0% target through GBP’s low value alone.
Various other key ecostats are due for both Britain and Australia throughout the week, including employment results.
The Australian Dollar will of course continue to respond to general risk appetite, and could slip later in the week if commodity prices begin to fall (as some analysts have predicted they will). Motley Fool Australia, for example, has predicted that iron ore prices could plunge soon after weeks of holding firm.