The GBP AUD exchange rate had managed to climb higher last week, rising from Monday’s levels of 1.64 to end the week around 1.65; its highest level in over nine weeks.
Poor Economic Data Clouds GBP Outlook, but Geopolitical Concerns Weigh on AUD
Last week’s GBP AUD gains were not smooth, with major headwinds plaguing both currencies thanks to a combination of domestic data and geopolitical concerns.
Data complicated the Pound’s advance, with the manufacturing and construction PMIs weakening; a better-than-expected performance from the services and composite could not change the overall picture of a weakening economy in the first quarter.
Friday’s industrial, manufacturing, construction and trade data all notably disappointed forecasts, making the picture of the UK economy even gloomier.
But the Australian Dollar had its own problems to contend with, including a cautious outlook from the Reserve Bank of Australia (RBA) after its latest decision to freeze interest rates at 1.50%.
Australian data was sparse for the rest of the week, giving investors little reason to re-evaluate their migration to safer assets.
The US had conducted missile strikes on a Syrian airbase and North Korea continued its aggressive rhetoric, causing markets to withdraw from the risky ‘Aussie’.
Pound Stuck at Opening Levels after Soft UK Inflation Data
Consumer prices may have continued to grow at 2.3% year-on-year in March as expected, but growth in core prices – excluding food and energy – slowed marginally further-than-anticipated to 1.8%.
The Bank of England (BoE) prefers to use the core index, as it is a less volatile measure of price growth, so the slower pace revealed here suggests policymakers will be in no rush to hike interest rates.
However, economists believe the late timing of Easter this year has affected the figures, with today’s producer price index data continuing to point to rising costs.
Australian Dollar Remains Soft after Moody’s Warns of Housing Market Risk
As well as mixed domestic data, the Australian Dollar is also reacting poorly to a new report on the housing market by credit ratings agency Moody’s.
While consumer confidence and the NAB business conditions indices both strengthened, this morning’s more important NAB business confidence survey showed sentiment weakening.
The study by Moody’s named Australia as one of the four most at-risk nations in terms of its vulnerability to a housing market downturn.
Once the types of debt being held in the nation are factored in, however, Australia becomes the most exposed to a property bust.
The extent to which Australians are using their own assets to secure debt is ‘particularly high’, Moody’s stated, noting that the levels were ‘comparable to that observed in Ireland on the eve of its housing market crisis’.
This is preventing the Australian Dollar from capitalising on the Pound’s current weakness.
GBP AUD Exchange Rate Forecast; BoE Governor Unlikely to Raise Monetary Tightening Hopes
The outlook for UK monetary policy may change tomorrow following a morning speech from Bank of England (BoE) Governor Mark Carney.
Given today’s middle-of-the-road inflation data, it is unlikely the Governor will exhibit signs that he now favours hiking interest rates, even if economists expect to see consumer prices spike in April.
Australia’s only headline data this week arrives on Thursday, when employment change figures are expected to show a sizeable increase in the number of people finding work.
This could support the ‘Aussie’ higher, even though the increase in employment is not projected to be enough to lower the unemployment rate.