Fears over the UK economic outlook and the future of Australian monetary policy saw the GBP AUD exchange rate trading widely.
Rocky Week of Trading for GBP AUD
GBP AUD fluctuated wildly last week, striking a low of 1.61 on Wednesday, but quickly rebounding before briefly spiking to a high of 1.63 on Friday.
The ‘Aussie’ had weakened on Tuesday after the Reserve Bank of Australia (RBA) released minutes from its latest policy meeting.
The board noted that many aspects of the Australian economy were performing strongly, but also observed that wage growth and consumption remained sluggish, indicating that the monetary policy outlook could remain neutral for some time.
But the Pound Australian Dollar exchange rate struck a weekly low after the second round of UK 2016 Q4 GDP figures disappointed forecasts.
Quarterly growth was actually revised higher again, this time to 0.7%, but year-on-year growth was cut to 2% from 2.2%. Data also showed that business investment had fallen -1% in the final three months of 2016.
GBP AUD Slumps on Fresh Investor Brexit Fears
According to reports, the UK government expected Scotland to demand a second referendum on its independence, with the request potentially coming soon after Article 50 has been invoked.
Scots voted in a clear majority to remain in the European Union during the Brexit referendum, hence why another vote on independence could be held. Investors fear that Scotland would not opt to remain a part of the UK this time around.
Fears that Theresa May was about to announce a cut-off date for EU immigrants seeking permanent residency could cause tensions with officials from the project before negotiations have even started also pushed the Pound lower.
Australian Dollar Boosted by News of Surging Company Profits
While UK data crippled the Pound yesterday, Australian data pushed the ‘Aussie’ higher, contributing to the fall in GBP AUD exchange rates.
2016 fourth-quarter figures for company profits showed a 20.1% surge on the previous quarter against forecasts of 8% growth. Recent strong commodity prices have greatly improved the fortunes of many Australian businesses, with ANZ economists Daniel Gradwell and David Plank explaining;
‘Much of this increase was due to the mining sector, where profits rose 50% on the back of rising export volumes and prices across iron ore, coal and LNG. Encouragingly, non-mining profits also posted a strong increase — up 8.7% for the quarter — with a number of sectors posting double digit gains.’
Packed Week of Key Data Forecast to Keep GBP AUD Volatile
Tomorrow promises to be a volatile day for GBP AUD given the amount of influential data on offer, both domestically and from overseas. The UK docket contains nationwide house prices and mortgage approvals figures, as well as net consumer credit and the Markit UK manufacturing PMI.
Releases that will influence the Australian Dollar include fourth-quarter GDP, the Chinese manufacturing PMI, US President Donald Trump’s address to Congress and the US ISM manufacturing PMI.
The rest of the week is also likely to see turbulence, given Thursday’s UK construction PMI comes alongside Australian trade balance figures and the AiG performance of services index.
The outlook of the UK economy could be battered or boosted on Friday after the services and composite PMIs have been released, while the Australian Dollar may be upset by the US ISM non-manufacturing composite index for February and a speech by Federal Reserve head Janet Yellen.