Last week Australia’s trade surplus impressed traders and the Pound Australian Dollar exchange rate accordingly plummeted from an interbank rate of 1.66 to 1.62, but the pair could make a recovery from its lowest levels this week.
Pound (GBP) Steady Following Broad Decline
The Pound was on the back foot against most of its currency rivals last week, recording losses against the Euro, US Dollar and New Zealand Dollar as well as the ‘Aussie’.
This was largely due to the Bank of England’s (BoE) February policy decision and growth/inflation forecasts, which disappointed investors by once again indicating the bank has no intention of normalising UK monetary policy any time soon.
Additionally, Markit’s January services and composite PMI results failed to meet expectations. As services make up 70% of the nation’s economic activity, this exacerbated concerns that UK growth is set to slow considerably in the coming year.
After a week of dips, demand for the Pound picked up on Monday morning as the currency was bought from its lows.
Australian Dollar (AUD) Slips on Mixed Ecostats and Weaker Iron Ore
Last week saw the Australian Dollar surge across the board thanks to an impressive Australian trade surplus result for December.
Australia’s trade balance was predicted to improve to A$2.2b but instead surged to a record high of A$3.51b. This offset concerns that Australia was headed for a technical recession or that the Reserve Bank of Australia (RBA) would revisit an easing bias in the coming year.
However, the ‘Aussie’ was met with early-bearishness when Asian markets opened. While Australia’s yearly retail sales met expectations with a result of 0.9%, the month-on-month retail sales result for December slipped to -0.1%.
This, as well as news that iron ore futures had plunged over the weekend, kept the Australian Dollar pressured.
GBP/AUD Forecast: Reserve Bank of Australia Decision Ahead
The main event for GBP/AUD this week will certainly be the Reserve Bank of Australia’s (RBA) first policy decision of 2017.
While no change to monetary policy is expected, investors will be paying close attention to the tone of the bank’s policymakers following last week’s record-high Australian trade surplus.
If the bank indicates that it will maintain a neutral stance towards monetary policy for a while longer, AUD may strengthen. If a potential interest rate hike is so much as hinted at, the ‘Aussie’ will surge.
Later in the week, the RBA will also publish its meeting minutes which are sure to be scrutinised by investors.
As for the Pound, this week’s UK data is unlikely to be highly influential. Instead, the latest Brexit news could be the driving force behind GBP movement. UK Parliament will make its final vote on whether or not to activate Article 50 on Wednesday before the bill is passed through to the UK House of Lords.
If futures and prices of iron ore begin to strengthen again and the Reserve Bank of Australia adopts a positive tone, the Pound to Australian Dollar exchange rate may have a tough time recovering this week.