A surprise dip in the Australian unemployment rate saw the GBP AUD exchange rate trending lower last week.
Even so, as the fall from 5.6% to 5.5% was largely driven by another solid uptick in part-time employment, the positive impact of the data was somewhat limited, especially given the notoriously volatile nature of the labour market survey.
However, the Australian Dollar found further support as the latest Chinese growth data bettered expectations, pointing towards sustained growth within the world’s second largest economy.
With base metal prices shored up by the prospect of continuing demand, the appeal of the commodity-correlated ‘Aussie’ naturally improved.
Weakening Business Optimism Weighs on GBP AUD Exchange Rate
The GBP AUD exchange rate has struggled to find any particular traction at the start of the week, as recent optimism over the prospect of tangible progress in Brexit negotiations rapidly faded.
Sterling instead came under pressure as the Confederation of British Industry (CBI) business optimism index unexpectedly slumped from 5 to -11 on the quarter.
This does not bode well for the outlook of the domestic economy, suggesting that Brexit-based uncertainty and a relatively weaker Pound are weighing on the manufacturing sector.
Altogether the UK economy continues to demonstrate signs of slowing, giving the Bank of England (BoE) plenty of reason to reconsider increasing interest rates in its November policy meeting.
Australian Dollar (AUD) Exchange Rates Look to Trend Higher on Rising Inflation
Confidence in the ‘Aussie’ could strengthen further on the back of the third quarter Australian consumer price index figures.
Any fresh uptick in inflationary pressure is likely to be greeted positively by investors, particularly if CPI edges back into the Reserve Bank of Australia’s (RBA) target range of 2% or more.
While signs still point towards the central bank leaving monetary policy on hold for some time to come, a strong showing here could still increase the pressure on policymakers to consider a more hawkish outlook.
On the other hand, if inflation fails to accelerate as much as forecast, this is likely to weigh heavily on the antipodean currency.
With confidence in the underlying strength of the Australian economy still somewhat limited, any softness in the data could give investors fresh reason to sell out of the ‘Aussie’.
The wider sense of market risk appetite could also provoke volatility for the GBP AUD exchange rate, with markets still pricing in relatively high odds of an imminent Federal Reserve interest rate hike.
Resilient UK Growth May Support Pound (GBP) Exchange Rates
The Pound could rally in the latter half of the week if the UK gross domestic product report for the third quarter proves encouraging.
Investors are hoping to see that growth held steady at 0.3% on the quarter, which would represent a modest but respectable level of economic activity.
However, if a sense of political uncertainty and the ongoing wage squeeze saw growth falter once again, this is likely to put the GBP AUD exchange rate under fresh pressure.
Weaker domestic growth could well undermine the case for a November interest rate hike from the BoE, especially as some policymakers have already expressed doubts over the wisdom of such a move.
If a rate adjustment fails to materialise next month we could see GBP experience a sharp slump.
Data Released This Week
25th October 01:30 AU Consumer Price Index (YoY) (3Q)
25th October 09:30 UK Gross Domestic Product (QoQ) (3Q)
26th October 01:30 AU Import Price Index (QoQ) (3Q)
26th October 01:30 AU Export Price Index (QoQ) (3Q)
26th October 11:00 UK CBI Retailing Reported Sales (OCT)