As markets expect to see another relatively dovish set of meeting minutes from the Reserve Bank of Australia (RBA) the appeal of Australian Dollar (AUD) exchange rates has remained muted.
Even though October’s consumer inflation expectation figure showed a solid uptick on the month, rising from 3.8% to 4.3%, this is unlikely to have been enough to improve the outlook of policymakers.
While recent business and consumer confidence indexes have painted a more optimistic picture of the Australian economy, concerns over its underlying strength nevertheless remain.
Brexit Worries Ease, Boosting GBP AUD Exchange Rate
The GBP AUD exchange rate came under renewed pressure as the latest round of Brexit negotiations drew to an end, with any meaningful sense of progress still lacking.
Chief EU negotiator Michel Barnier’s comment that talks have reached a ‘deadlock’ prompted a sharp selloff for the Pound, stoking fears of a potential hard exit.
Even so, this failed to keep Sterling on a weaker footing for long thanks to the more optimistic tone struck by other officials.
As Theresa May prepared to meet with Barnier and European Commission President Jean-Claude Juncker over dinner market hopes for some step forward mounted.
However, if signs continue to point towards the second phase of talks not getting underway on schedule the GBP AUD exchange rate could return to a weaker footing.
Further GBP Gains Possible on Rising UK Inflation
Confidence in the Pound could improve further on the back of September’s UK consumer price index data, which may increase the odds of an imminent Bank of England (BoE) interest rate hike.
Forecasts point towards a fresh uptick in inflationary pressure from 2.9% to 3.0% on the year, driving inflation further away from the BoE’s target range.
This is likely to increase the impetus for policymakers to begin tightening monetary policy, making a November rate hike almost certain.
Even if inflation falls short of forecast, the odds of the BoE raising interest rates in the near future are unlikely to particularly diminish.
With markets already having largely priced in the possibility of a rate hike, however, the GBP AUD exchange rate may struggle to find any significant gains on the back of this data.
Will Weaker Participation Rate Dent Australian Dollar (AUD) Exchange Rates?
Thursday’s raft of Australian employment data is likely to provoke further volatility for Australian Dollar exchange rates, regardless of the nature of the RBA’s October meeting minutes.
While the labour market data is notoriously volatile in nature, a disappointing showing could still weigh heavily on AUD exchange rates.
With investors expecting to see a modest dip in September’s participation, rate the Australian Dollar is likely to come under pressure over the course of the week.
However, China’s third quarter gross domestic product report could offer the risk-sensitive ‘Aussie’ a rallying point.
Another strong showing from the world’s largest economy would boost base metal prices and confidence in the global outlook, to the benefit of the antipodean currency.
Any disappointment could encourage the GBP AUD exchange rate to extend its recent gains further ahead of the weekend.