The Pound to Australian Dollar exchange rate fell on Monday. While the pair put in a brief recovery after Tuesday’s stronger-than-expected UK inflation report, the result was not high enough to make investors more optimistic about the Bank of England (BoE) interest rate outlook.
As a result, GBP/AUD fell back towards the week’s low of 1.7349.
Pound (GBP) Fails to Benefit from UK Inflation Data
Tuesday saw the publication of Britain’s anticipated April Consumer Price Index (CPI), which beat expectations in both yearly and monthly prints.
Inflation was projected to rise from 2.3% to 2.6% year-on-year but instead jumped to 2.7%. The monthly figure was forecast to remain at 0.4% but gained to 0.5%.
Normally, this would cause a notable increase in demand for the Pound amid hopes it might encourage the Bank of England (BoE) to increase borrowing costs. However, after a brief jump Sterling actually weakened while investors digested the results.
The Pound was unable to benefit as the BoE has already predicted UK inflation will near 3% in 2017. Markets doubt that the BoE will be pressured by any inflation result under 3% and even if inflation reaches that high, bets of BoE tightening are still likely to be limited.
Australian Dollar (AUD) Weak as Monday’s Risk-Rally Fades
The Australian Dollar was unable to benefit considerably from the Pound’s Tuesday weakness amid the ‘Aussie’s own broad weakness. Besides a brief increase in demand for risky currencies on Monday, the Australian Dollar is still generally lacking in market appeal.
Tuesday saw the publication of the Reserve Bank of Australia’s (RBA) latest meeting minutes. The report contained little that investors didn’t already know, including familiar warnings about Australia’s housing and job markets.
Overall, the RBA believed that Australia’s inflation and economic growth were on track, but risks in those sectors prevented the bank from being more hawkish.
Monday saw the Australian Dollar and prices of iron ore (Australia’s biggest export) briefly supported by an ambitious ‘Silk Road’-inspired global trade plan, proposed by Chinese President Xi Jinping on Sunday.
GBP/AUD Forecast: Employment Data Ahead
Wednesday will see the publication of Britain’s March employment report and April jobless claims data, followed by Australia’s April employment data during Thursday’s Asian session. These all have the potential to influence GBP/AUD.
Of particular interest to GBP investors will be the latest UK wage growth stats. If wages continue to see slower growth than inflation it is likely to increase concerns that GDP could be held back by a drop in consumer spending this year.
If wage growth comes in well above expectations, the Pound is likely to benefit.
Thursday’s Australian employment stats will be just as important (if not more so) for GBP/AUD. The Reserve Bank of Australia (RBA) has recently highlighted the job market as being one of the major headwinds facing Australia’s economy.
If April job stats come in well above expectations, the Australian Dollar may finally see a more solid boost in demand. This could cause GBP/AUD to fall towards the end of the week.
On the other hand, poor Australian job stats would likely cause GBP/AUD to recover and rise this week.