Forecast for Slower UK Wage Growth Triggers -0.3% Pound Sterling to Australian Dollar Exchange Rate Decline

Update: GBP/AUD Exchange Rate Falls by -0.3% as Experts Forecast Inflation Overtaking Wages

The Pound to Australian Dollar exchange rate has fallen by a further -0.3% on 13th April, ahead of potentially damaging UK jobs data.

The expectation is that UK wage growth could slow and inflation could accelerate, which will put UK consumers into a difficult situation under wage squeeze conditions.

Wage squeezes can eventually lead to slower UK retail sales activity along with poor GDP growth, so Pound traders have been understandably cautious.

Disappointing GBP/AUD Exchange Rate Seen despite Favourable Economic Conditions

The Pound to Australian Dollar exchange rate has made a small decline of -0.2% today, although in most other pairings GBP has steadily advanced.

This decline is instead down to the Australian Dollar being the more desirable currency of the two in the pairing.

On the UK side, conditions have been rendered more favourable thanks to perceived instability in major rivals such as the Euro and US Dollar.

Recent Warnings about UK Growth Levels Prevent GBP/AUD Exchange Rate Rally

As well as the Australian Dollar being the stronger currency today, the Pound has also been unable to advance because of background concerns about UK growth.

The National Institute for Economic and Social Research (NIESR) has estimated UK Q1 GDP growth at 0.2%, but analysts have warned that the actual reading could be even lower.

This caveat was down to the weather that hit the UK in March, potentially leading to inaccurate readings when measuring economic activity.

Australian Dollar to Pound (AUD/GBP) Exchange Rate Advances as US Hints at TPP Membership

Recent Australian Dollar to Pound exchange rate gains come after positive international trading news.

US President Donald Trump has suggested that his nation could re-join the Trans-Pacific Partnership (TPP), having left the trading arrangement in early 2017.

After years of negotiation, the multinational agreement is finally going ahead; US involvement could greatly increase potential Australian benefits from the deal.

Pound to Australian Dollar Exchange Rate Forecast: Risk of GBP/AUD Decline if UK Inflation Overtakes Wage Growth

The Pound to Australian Dollar exchange rate (GBP/AUD) was disappointing this week, with further losses potentially ahead on UK jobs and inflation rate data.

These readings will be out on 17 and 18 April, starting with average earnings and inflation rate figures for February.

Economic predictions are negative in both cases; as well as a jobless rate rise from 4.3% to 4.4% being anticipated, wage growth with bonuses is tipped to slow from 2.8% to 2.6%.

The GBP/AUD exchange rate could decline on this news, with greater losses occurring if inflation rate stats for March show a year-on-year rise from 2.7% to 2.8%.

Slowing wage growth and rising levels of inflation would mean that the UK is returning to wage squeeze conditions, which investors had hoped would be eliminated in 2018.

If next week’s UK data prints as forecast then the Pound could slide against the Australian Dollar, given the negative implications of fresh wage squeeze conditions on UK consumers.

On the other side of the pairing, the Australian Dollar might be affected by RBA minutes and employment data due out over the coming week.

The RBA meeting minutes out on 17 April might trigger an AUD decline if they show a preference for caution, as seems to be the case in the recent financial stability review.

Any losses could be short-lived, however, if March’s unemployment rate is reported to have fallen as expected.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon