Although the Australian unemployment rate unexpectedly dropped to 5.4% in October this failed to boost AUD exchange rates for long, and the Pound to Australian Dollar (GBP/AUD) exchange rate looks set to end the week stronger.
Markets were more concerned by the corresponding dip in the participation rate, which suggests that the labour market is not actually tightening as policymakers would like.
As a result the GBP AUD exchange rate continued to push higher ahead of the weekend, with confidence in the Australian economy still somewhat shaky.
With the Reserve Bank of Australia (RBA) looking set to leave monetary policy on hold for the foreseeable future, the upside potential of the ‘Aussie’ remains rather limited at this juncture.
Even a sharp slump in the value of the US Dollar was not enough to shore up Australian Dollar exchange rates on Friday.
GBP AUD Exchange Rate Strengthened as UK Retail Sales Bettered Forecast
Confidence in Pound Sterling (GBP) exchange rates picked up in the wake of Thursday’s better-than-expected UK retail sales data, meanwhile, even though the figures were still not overly impressive.
While sales showed their first annual contraction since March 2013 investors were still encouraged by an uptick in monthly volumes.
This gave GBP exchange rates a solid boost, helping to reverse some of the major losses the currency accumulated over the course of the week as other UK data had proved more disappointing in nature.
However, this boost is unlikely to be very long-lived, with signs pointing towards consumers continuing to rein in their spending over the coming months at the wage squeeze bites.
RBA Dovishness to Maintain Australian Dollar Exchange Rate Downside
Fresh commentary from RBA policymakers is unlikely to offer any particular encouragement to Australian Dollar (AUD) exchange rates in the coming week.
Unless the tone takes a greater turn towards optimism investors are likely to lack the incentive to favour the antipodean currency, especially if the minutes from the November policy meeting prove dovish.
With major Australian data thin on the ground the GBP AUD exchange rate could well benefit, providing that the general sense of market risk appetite does not pick up.
Even so, any signs of improvement in the Westpac leading index for October may offer the Australian Dollar a respite, encouraging some degree of confidence in the domestic outlook.
Persistent US Dollar weakness could also limit the downside potential of AUD exchange rates in the near term.
Pound Sterling Jitters Forecast on UK Budget Announcement
Political concerns look set to dominate sentiment towards the Pound for the foreseeable future, with additional volatility likely ahead of Wednesday’s Budget announcement.
Chancellor Philip Hammond appears rather constrained by weak UK productivity, particularly as the country’s finances are not quite as healthy as he might have liked.
This sets the stage for a potentially disappointing Budget, which fails to offer any fresh stimulation to the sluggish UK economy.
The GBP AUD exchange rate could slump sharply in the wake of Hammond’s announcement, especially if the Budget provokes further division within Theresa May’s Cabinet.
Brexit-based developments will also be in focus as markets hope to see at least some sign that UK and EU negotiators are edging closer towards an agreement on exit terms.
If the prospect of a transitional deal appears to diminish this is likely to weigh heavily on the Pound, compounding persistent concerns over the strength of the economic outlook.