Strong Australian Ecostats and a Downbeat Response to UK Economic Forecasts Undermine Sterling and Sink GBP/AUD Exchange Rate
Losses for the GBP/AUD exchange rate have narrowed this afternoon, although even a notable improvement still leaves the pairing -0.3% weaker.
The release of disappointing US retail sales figures, which showed a surprise continued decline month-on-month, has failed to further heighten appetite for the high-yield Australian Dollar.
Strong Australian Data and a Gloomy Response to UK Economic Forecasts from Spring Budget Statement Weakens Pound Sterling and Topples GBP/AUD Exchange Rate
Pound Sterling has slumped -0.7% today after several leading UK think tanks issued cautious responses to yesterday’s Spring Statement, with the GBP/AUD exchange rate pressured even lower thanks to recent strong Australian data.
Yesterday’s Budget Statement contained little in the way of fiscal policy changes, although Chancellor of the Exchequer Philip Hammond did hint that there may be additional cash for public services in the autumn Budget if the deficit keeps falling.
However, Head of UK Macroeconomic Forecasting at the National Institute for Economic and Social Research (NIESR) Amit Kara believes that the Chancellor should have done more to ready the UK economy for Brexit, stating:
‘An urgent action point might be to create a range of shovel-ready projects across the country and specifically in regions and sectors that are most vulnerable to an exit from the EU and to simultaneously prepare a strategy for the longer terms consequences of Brexit.’
Meanwhile, Paul Johnson, Director of the Institute for Fiscal Studies (IFS), has suggested that the recent forecasts released by the Office for Budget Responsibility (OBR) indicate that the current weak state of the UK economy could be here to stay, claiming:
‘Dismal productivity growth, dismal earnings growth and dismal economic growth are not just part of the history of the last decade, they appear to be the new normal.’
GBP/AUD Exchange Rate Undermined as Strong Domestic Data Boosts Australian Dollar against Pound Sterling
Recent Australian data has provided strong support for the Australian Dollar, weakening the GBP/AUD exchange rate.
Last night’s Westpac consumer confidence figures provided a mild boost after revealing a 0.3% uptick in the index from 102.7 to 103.0 points, although this still leaves sentiment well-below January levels thanks to the -2.3% drop recorded in February.
Additionally, a speech from Reserve Bank of Australia (RBA) Assistant Governor of Financial Markets Christopher Kent provided support for AUD.
Kent claimed that markets may be underestimating the risk of an acceleration in global growth and that strong growth worldwide could lead to a pick-up in inflationary pressures, which suggests he sees monetary tightening on the horizon for Australia.
The Chinese industry figures released early this morning have also given the Australian Dollar a boost, after showing stronger-than-expected rates of industrial production during February.
On a year-on-year and year-to-date basis, industrial production grew 7.2% last month, accelerating from 6.6% in January against forecasts of a slip to 6.2%.
This bodes well for Australian exports, as rising factory activity in China suggests that demand for Australian iron ore was likely to have increased last month and could carry over to this month as well.
GBP/AUD Exchange Rate Could Gain if On-Forecast New Zealand GDP Undermines Australian Dollar Demand
There is no UK or Australian economic data set for release for the rest of today, or the rest of the week in the UK’s case, leaving the GBP/AUD exchange rate vulnerable to international developments.
However, high-impact growth data from New Zealand could benefit the Pound by making the Australian Dollar a less-appealing high-yield asset than its Antipodean cousin the New Zealand Dollar.
Growth in the New Zealand economy during the fourth-quarter of 2017 is predicted to have accelerated from 0.6% to 0.8% quarter-on-quarter and from 2.7% to 3.1% year-on-year.
However, the Australian Dollar could claw back any subsequent weakness after the release of the New Zealand data if the Australian consumer inflation expectation for March shows an uptick.
The gauge of long-term price growth estimations is currently at 3.6% – a rise higher would boost the Australian Dollar as it suggests consumers are more likely to spend money in the short-term, increasing inflationary pressure.
Tomorrow evening will see Reserve Bank of Australia Deputy Governor Guy Debelle give a speech in Sydney, which may cause volatility for AUD should he mention the monetary policy outlook.
If the Deputy Governor sounds upbeat about the domestic economy and inflation outlook, the Australian Dollar could receive a boost.