Rising hopes of an interest rate hike from the Bank of England (BoE) and weakening iron ore prices allowed the GBP AUD exchange rate to climb 2.5% to a seven-and-a-half-week high of 1.64 over the past seven days.
BoE Rate Hike Odds Rise after Inflation Beats Forecasts
GBP AUD climbed notably higher on Tuesday after the latest UK inflation data was released.
The February figures showed that price growth had accelerated to 0.7% on the month and 2.3% on the year; 0.2% above-forecast in both instances. Additionally, core consumer prices – the index that removes volatile energy and food costs to give a more accurate picture of price growth – rose to meet the Bank of England’s (BoE) target rate of 2%.
Traders therefore began pricing in greater odds of the BoE hiking interest rates in the near term.
Thursday’s retail sales figures helped support the Pound Australian Dollar exchange rate higher.
Sales grew 4.1% year-on-year, against predictions of a rise from 2.1% to 3.2%, while sales excluding auto fuel growth jumped from 1% to 3.7%, against forecasts of 2.6%.
RBA Caution over Housing Market Risk Keeps Australian Dollar on the Downtrend
The Australian Dollar spent most of last week on the decline.
Tuesday’s Reserve Bank of Australia (RBA) meeting minutes revealed that policymakers were concerned over the vulnerability of the housing market. Prices continue to surge in the sector, but there is also a potential oversupply in the pipeline.
The warning over risks to the property sector from overheating prices was only heightened by the fact the meeting minutes were released alongside the 2016 Q4 house price index.
House prices accelerated from 1.5% to 4.1% quarter-on-quarter, against predictions of a rise to 2.5%, while year-on-year prices increased 7.7%, beating forecasts of an uptick from 3.5% to 6.3%.
Continued Iron Ore Losing-Streak Undermines Australian Dollar
GBP AUD exchange rates are soaring higher today after Chinese iron ore futures struck a six-week low.
Prices of Australia’s key export have continued to fall for a fifth consecutive session on fears that the current high levels of demand may not hold up. A combination of further measures from the Chinese government aimed at curbing industry activity and strong ore stockpiles has pushed prices lower.
Iron ore had become a favourite amongst speculative investors due to its huge recovery in recent months, but those investors are now deserting futures on the fear the rally has run out of momentum.
Safe-Haven Demand to Push Pound Higher despite Article 50 Trigger Fears?
Theresa May is due to trigger Article 50 – the clause of the Lisbon Treaty that will officially begin the divorce process from the EU – on Wednesday. While this is likely to be Sterling-negative, the Pound may escape the worst volatility thanks to safe-haven demand.
GBP is not a traditional safe-haven asset, but since the Brexit vote has become something of a sanctuary for investors due to the belief that the largest shock has already happened.
Traders are today selling out of the US Dollar and buying into the Pound, amongst other things, after President Donald Trump failed to secure support from the Republican majority in the Senate to approve his replacement for the Obamacare bill.
Investors worry this could foreshadow similar trouble for his market-positive spending and tax reforms, leaving the outlook of the US Dollar bearish.
This Sterling demand could remain in the long-run, helping curb the negative impact of the Article 50 trigger.
Meanwhile, the Australian Dollar is likely to offer little in the way of resistance due to a sparse data calendar and continued fears over iron ore prices.