Although the rising odds of the Federal Reserve increasing interest rates in March helped the Pound hold its own against the Australian Dollar last week, the GBP AUD pairing dipped slightly as investors look ahead to the Reserve Bank of Australia (RBA) policy meeting and the UK’s Spring Budget.
Last week saw the Pound start and close trading against the Australian Dollar at an interbank rate of 1.61 after fluctuating between 1.60 and 1.62.
Pound Losses Triggered by Budget Concerns, Austerity Expected to Continue
With no major UK data out before the budget, Chancellor Philip Hammond’s plans are expected to be the biggest source of GBP movement this week.
Speculation has been rife over what Hammond will and will not say, with the general assumption being that the impending Brexit negotiations will have a limiting impact on any spending measures.
Guardian Economics Reporter Katie Allen has offered some pre-budget advice;
‘The interesting forecasts to watch for will be what the Office of Budget Responsibility (OBR) thinks will happen to inflation, real wages and household spending over coming years. Those projections will give a far better picture of how policy decisions and the economic backdrop are very likely to affect people’s day-to-day lives than the deficit projections and GDP estimates.
The picture will be completed on Thursday, when the Institute for Fiscal Studies (IFS) conducts its traditional post-budget number crunching to spell out what it all means for different income groups’.
Broadly speaking, signs of higher taxes and more budget cuts are expected to weaken the Pound, while optimistic statements from the Chancellor could be enough to make the Pound rise against the Australian Dollar.
Australian Dollar Rises on Retail Sales Results, But RBA Ahead
Although Fed rate expectations have been taking a toll on AUD demand, the Australian Dollar has been supported by forecasts for higher iron ore prices and as well as news that retail sales climbed at the beginning of the year.
Consumer spending jumped from -0.1% to 0.4% in January. While positive, this sales growth is not expected to be consistent, according to ANZ Senior Economist Jo Masters;
‘We see any significant acceleration in consumer spending as challenging given ongoing weakness in wage growth and high household debt’.
GBP/AUD Exchange Rate Forecast
This week, Pound/Australian Dollar exchange rate movement may occur as a result of the Spring Budget on Wednesday and Friday’s UK trade balance figures.
However, the upcoming Reserve Bank of Australia (RBA) interest rate decision could also have a notable impact on GBP AUD trading.
Although the RBA is expected to leave interest rates on hold at 1.5%, any hints that the central bank has plans to cut borrowing costs in the near future could send the ‘Aussie’ lower against its British rival.