The limited trading volumes of the festive period have resulted in some volatile movement for the GBP AUD exchange rate, with both the Pound and Australian Dollar suffering from bearish headwinds. Demand for the commodity-correlated ‘Aussie’ has been limited thanks to the strength of the US Dollar, as markets have moved to price in higher odds of the Federal Reserve raising interest rates multiple times in 2017.
Expectations of tighter US monetary policy and fiscal stimulus have weighed heavily on the outlook of the antipodean currency, boding ill for commodity prices in the coming year.
Demand for the Australian Dollar was also dented by the Reserve Bank of Australia’s (RBA) December meeting minutes. Investors were discouraged to find the concern with which policymakers regard the domestic housing market and labour data, stoking fears that the RBA will return to an easing bias.
Although this helped to buoy the GBP AUD exchange rate, the tone of the minutes was not entirely dovish, with Governor Philip Lowe appearing to be less concerned with the inflation target.
Commodity Price Rally Boosted Australian Dollar
Pressure mounted on the Pound, meanwhile, after November’s UK public sector net borrowing figure overshot forecasts. New government debt clocked in at 12.2 billion for the month, indicating a widening of the domestic trade deficit. Given the uncertain outlook of the UK economy and Sterling’s post-referendum softness, a higher level of government borrowing prompted worries, leaving the GBP AUD exchange rate on a downtrend.
While the GfK consumer confidence survey for December showed an unexpected uptick, this was ultimately not enough to improve the appeal of the Pound. Despite the measure showing an improvement on the month the report suggested that sentiment is likely to deteriorate again in the coming months. High levels of spending were attributed to a desire among consumers to make large purchases before inflation rises further, putting additional pressure on the GBP AUD exchange rate.
Even though the underlying strength of the US Dollar remained in the final trading week of the year, the ‘Aussie’ saw something of a resurgence. Commodity prices rallied in response to positive Chinese data, with the world’s second largest economy continuing to show signs of robustness to allay fears of a hard landing. Stronger base metal prices supported the Australian Dollar in the absence of fresh domestic data, although the outlook of the antipodean currency remains a little more bearish in nature.
Weaker UK Housing Market to Dent GBP AUD Exchange Rate
Ahead of the weekend, the Australian private sector credit data for November could dent the GBP AUD exchange rate. Forecasts point towards a modest uptick on the year, which would suggest that confidence within the domestic economy remains resilient. While speculation over the policy outlook of the Reserve Bank of Australia (RBA) is likely to persist into the New Year, a stronger showing here would nevertheless boost the ‘Aussie’ in the short term.
Signs are likely to indicate a slowing of momentum within the UK housing market, as the Nationwide house price index is expected to dip from 4.4% to 3.8% in December. Weakness here would raise worries of slowing within the wider economy, to the detriment of the Pound. If post-referendum uncertainty is shown to be weighing on sentiment then this could see the GBP AUD currency pair trend lower, particularly if hard Brexit fears remain elevated.