Pound Australian Dollar Forecast: Customs Union Prompts GBP AUD Exchange Rate Volatility

GBP/AUD Exchange Rate Fluctuates as Brexit Uncertainty Undermines Upbeat Labour Report

The Pound Australian Dollar (GBP/AUD) exchange rate initially strengthened at the start of last week’s session as markets welcomed the UK’s latest employment figures, with a rise in basic pay signalling the end of a year-long pay squeeze in the UK.

However Sterling (GBP) stumbled in the second half of the week as some mixed messages from the government sowed confusion over whether the government would attempt to remain in the EU customs union post-Brexit.

Meanwhile a plethora of Australian data releases rocked the ‘Aussie’ (AUD) last week, starting with some dovish minutes from the Reserve Bank of Australia’s (RBA) latest policy meeting, which drove some initial weakness in the AUD exchange rate.

These losses were extended by the release of some anaemic wage figures on Wednesday, although the Australian Dollar was then able to rally in the second half of the week thanks to a welcome uptick in Australian employment growth.

Australian Dollar (AUD) Exchange Rate Rockets on Easing US-China Trade Tensions

The Australia Dollar (AUD) is punching higher at the start of this week, driving the GBP/AUD exchange rate to a fresh two-month low as the US and China put their trade war ‘on hold’.

The outcome is a result of tense negotiations between the two sides over the weekend, which has resulted in an agreement which will avoid tariffs being places on billions of dollars’ worth of imports.

US Treasury Secretary Steven Mnuchin told Fox News:

‘We’re putting the trade war on hold, right now, we have agreed to put the tariffs on hold while we try to execute the framework.’

The news resulted in a surge in market risk appetite at the start of this week, lifting currencies like the Australian Dollar, which would be highly exposed to any trade war in the region.

Pound (GBP) Exchange Rates Stumbles as Brexit Jitters Grow

At the same time the Pound (GBP) continues to struggle at the start of this week’s session as comments from UK Foreign Secretary Boris Johnson cast further doubts over the government’s aims.

Speaking in Argentina, Johnson appeared to rail against any notion of the UK accepting a ‘backstop’ agreement, saying:

‘Brexiters fearing betrayal over the customs backstop must understand that the PM has been very clear that it is not an outcome we desire; we want a deal with the EU and she will deliver it.’

This has done little to clarify the government’s position on the EU customs union and seems to have helped further spook markets.

GBP/AUD Exchange Rate Forecast: Will the UK’s Latest Inflation Figures Bolster Sterling?

Looking ahead, movement in the GBP/AUD exchange rate this week is likely to be driven by the release of the UK’s latest inflation figures.

This could see the Pound (GBP) exchange rate strengthen if inflation is shown to have risen last month, as a few economists predict, with an uptick in inflation possibly bolstering the chances of the Bank of England (BoE) raising interest rates later this year.

Meanwhile it is set to be a quiet session for Australian data this week, with the Australian Dollar (AUD) likely to continue to be driven by external influences, and movement in commodity prices.

Laura Parsons

Laura has been working in the financial services sector since 2012 and provides currency news updates for a number of online and print publications. Over the years she has produced exchange rate analysis for publishers like French Property News, The Express, The Telegraph and Forbes.

Contact Laura Parsons