While mounting global geopolitical tensions helped to boost the GBP AUD exchange rate during the last week the pairing struggled to hold onto any particularly bullish momentum.
Demand for the Pound weakened sharply on the back of a disappointing raft of UK data. Particularly discouraging was the NIESR gross domestic product estimate for the three months to July, which pointed towards a sustained slowing of economic growth. This did not encourage particular optimism in the outlook of the UK economy, denting Sterling on Thursday.
RBA Jawboning Dented Australian Dollar Demand
Although Reserve Bank of Australia (RBA) Governor Philip Lowe acknowledged that the next move in interest rates is more likely to be up than down this did not offer the ‘Aussie’ any particular support.
Lowe’s comments on the RBA’s discomfort with the relative strength of the Australian Dollar were of greater interest to markets, even though the prospect of any monetary policy action remained limited. This attempt at jawboning was enough to boost the GBP AUD exchange rate ahead of the weekend.
However, the Pound struggled to maintain its gains against the Australian Dollar for long thanks to disappointing US inflation data. As inflation failed to rise as far as forecast in July the odds of the Federal Reserve raising interest rates for a third time in 2017 diminished sharply.
With risk aversion also easing somewhat this offered the ‘Aussie’ a rallying point, reversing much of Friday’s GBP AUD exchange rate uptrend.
As Australian credit card purchases dipped in June the mood towards the antipodean currency soured somewhat on Monday morning, though. This weaker showing suggests that consumers are not as confident in the domestic outlook, even as a stronger ‘Aussie’ keeps inflationary pressures in check.
As the latest raft of Chinese sales and industrial production data proved disappointing this also weighed on AUD exchange rates, preventing any particular rebound in investor demand for commodity-correlated currencies.
GBP AUD Exchange Rate Rally Possible on Stronger UK Inflation
Confidence in the Australian Dollar could ease further if the RBA’s August policy meeting minutes also prove to be more dovish in tone. So long as policymakers continue to express concern over domestic inflation and talk down the prospect of any change in monetary policy these should see the ‘Aussie’ fall further out of favour.
On the other hand, any signs of greater confidence could offer AUD exchange rates a boost.
Market jitters look set to intensify ahead of July’s UK consumer price index, with markets keen to get a fresh gauge on domestic inflationary pressure. Forecasts point towards a fresh uptick in inflation from 2.6% to 2.7% on the year.
While this increase would not be entirely positive for consumers, who continue to be squeezed by lacklustre wage growth, the Pound could still rally here. If inflation runs further away from the Bank of England’s (BoE) 2% target this may encourage bets that policymakers will have to raise interest rates sooner rather than later.
Thursday’s raft of Australian labour market data may also prompt volatility for the GBP AUD exchange rate, even though forecasts point towards no change in the unemployment rate. While the report is notoriously volatile in nature any significant deterioration in the headline employment change figure could put pressure on the ‘Aussie’.
Sign of softening within the domestic labour market would give the RBA further reason to leave interest rates on hold for the foreseeable future, limiting the upside potential of the antipodean currency in the near term.