Pound to Australian Dollar Exchange Rate Forecast: Will ‘Trade War’ Fears Continue to Lighten?

Update 2: Pound to Australian Dollar Exchange Rate Slips from Best Levels on Doused ‘Trade War’ Concerns

Overnight, the US and China continued to indicate that the nations would rather negotiate on trade issues than spark a ‘trade war’,

As a result, ‘trade war’ concerns finally lightened slightly and the Pound to Australian Dollar (GBP/AUD) exchange rate fell from its highs.

Investors bought the risky Australian Dollar as risk-sentiment finally improved again.

However, GBP/AUD only slipped to near the week’s opening levels. Australian Dollar strength was weighed by weak performance of iron ore, Australia’s most lucrative commodity, in recent sessions.

Update 1: Pound to Australian Dollar Exchange Rate Hits New 2018 High on ‘Trade War’ Uncertainties

Reports claiming that the US and China had begun talks to avoid a potential ‘trade war’ have not been enough to make the risky Australian Dollar (AUD) more appealing.

Markets remain concerned that talks could fall through and as a result Sterling (GBP) has remained more appealing.

GBP/AUD touched on a new post-Brexit vote high of 1.8400 on Monday afternoon.

Demand for the trade-correlated Australian Dollar has also been limited by weaker prices of iron ore, Australia’s most lucrative commodity.

Pound to Australian Dollar Exchange Rate Holds Near Post-Brexit Vote Highs on Trade Uncertainties

Concerns over the possibility of a trade war between the US and China made it easier for the Pound to Australian Dollar (GBP/AUD) exchange rate to sustain major gains last week.

After opening last week at the interbank level of 1.80, GBP/AUD spent most of the week climbing and closed on Friday near a high of 1.83. This was the pair’s best interbank level since the 2016 Brexit vote.

On Monday, GBP/AUD continued to trend near those highs. GBP/AUD briefly dipped during the Asian session, but persistent trade concerns and high bets of a Bank of England (BoE) interest rate hike in May kept the pair buoyant.

Demand for the Australian Dollar (AUD) was a little stronger on Monday due to reports that the US and China were beginning trade talks behind the scenes in order to resolve a week of trade-related threats.

However, the threat of a trade war remains, especially as the two nations could still ramp up tariffs against each other. As a result, the Australian Dollar’s gains were limited.

Pound (GBP) Exchange Rates Supported by Brexit and Bank of England News

Investors have had plenty of reason to buy the Pound (GBP) over the past week, making it easy for the British currency to advance against a weak Australian Dollar.

Perhaps the biggest news of the week was the agreement between the UK and EU over the terms of a post-Brexit transition period.

The transition is set to last from March 2019 until December 2020 and will help prevent British businesses and markets from suffering a ‘cliff-edge’ Brexit shock.

Relief over the transition plan helped make investors more optimistic about the chances of the Bank of England (BoE) taking a more hawkish approach on UK monetary policy in the coming year.

Bets that the Bank of England could be preparing to hike UK interest rates again as soon as May firmed further as UK wage growth and retail sales results beat analyst expectations throughout the week.

Of course, with the BoE itself also hinting during its March policy decision that it planned to hike UK interest rates in the coming months, investors are now expecting a May rate hike and this is providing solid support for GBP trade.

Pound to Australian Dollar (GBP/AUD) Forecast: UK Growth and Global Trade Developments in Focus

Unless there is surprising Brexit news, the Pound is more likely to be driven by UK ecostats in the coming days.

However, developments on US trade tariffs and the possibility of a trade war will continue to influence the Australian Dollar.

In terms of data, the prime ecostat this week will be Britain’s final Q4 2017 Gross Domestic Product (GDP) results, which will be published on Thursday. UK business investment and mortgage data will also come in on Thursday.

Australian new home sales data will be published on Tuesday, followed by private sector credit data on Thursday.

Investors are likely to overlook any optimistic data and will continue to find the Australian Dollar unappealing if there are no positive developments regarding the protectionist tone on trade from the US.

If the US continues to push ahead with trade tariff plans and there is no sign of agreement between the US and China, the ‘Aussie’ could remain pressured throughout the week.

Of course, any news that the US and China could resolve issues through talks would calm markets and make risky currencies like the Australian Dollar more appealing again.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard