Despite a couple of strong spikes, the GBP AUD exchange rate has seen significant losses over the past seven days.
Positive Outlooks for Australian Economy and Monetary Policy Send Pound Lower
Last Monday saw the Pound climb sharply against the Australian Dollar. Prime Minister Theresa May gave a speech to business leaders in which she commented that the government may look to negotiate a transitional Brexit, rather than a ‘Hard Brexit’. This would involve a five-year grace period after the negotiations were complete, in which the UK would remain a part of the single market while the UK government created new trade relationships outside of the EU.
However, the next two days saw the Australian Dollar eat away at the Pound’s gains. Christopher Kent, the Reserve Bank of Australia (RBA) Assistant Governor, commented that the states hit hardest by the mining bust were showing signs of improving economic activity. He claimed that this would help boost economic growth and drive up inflation, justifying interest rate hikes from the RBA.
Philip Hammond’s long awaited Autumn Statement contained few real surprises; spending measures were limited, but included some business-friendly long-term stimulus projects that investors approved of. Although the forecasts were for UK national debt to exceed £2 trillion in the next few years, investors had already been fearing the worst.
Although Sterling climbed, GBP AUD edged lower again towards the weekend. There may have been strong Q3 GDP figures from the UK, but as these latest estimates remained the same as the first round of projections, there was no new information for investors to work with. Meanwhile, a weak US Dollar and a prediction from Bank of America Merrill Lynch that Australia was on course to smash the Netherland’s record for the longest period of uninterrupted economic growth fuelled demand for the ‘Aussie’.
GBP AUD Exchange Rate Forecast; Further Brexit News to Weigh on UK?
Brexit fears have also returned this week, weakening the Pound Australian Dollar exchange rate on the back of Organisation for Economic Co-operation and Development (OECD) forecasts for weak growth over the next two years. In more dovish predictions than those of the Office for Budget Responsibility (OBR) and the Bank of England (BoE), the OECD predicted the UK economy would grow 1.2% in 2017 and 1% in 2018. This could continue to weigh on the Pound going forwards.
From a data point of view, UK consumer sentiment can be gauged by Wednesday’s GfK consumer confidence survey results. Wednesday also sees the Bank of England (BoE) published its Financial Stability Report.
Domestic data for Australia includes the HIA new home sales and private sector credit figures for October and the AiG performance of manufacturing index for November on Wednesday, as well as retail sales data on Friday. However, the biggest ‘Aussie’ movement could come from Thursday’s Chinese manufacturing PMI for November.