GBP/AUD Exchange Rate Retreats as Brexit Talks Hit a New Roadblock
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has fallen back again this afternoon, following reports from The Times that Prime Minister Theresa May will reject the EU’s new proposals for the Irish border.
12pm Times
May rejects Barnier improved Irish brexit offerhttps://t.co/C3ZpFgXUml
— Sam Coates Times (@SamCoatesTimes) September 19, 2018
This comes shortly after EU chief Brexit negotiator Michel Barnier announced the EU was ‘ready to improve’ its offer for the Irish border to help expedite talks.
How it’s thought that Barnier’s new offer did not drop his requirement that Northern Ireland be treated as a separate customs jurisdiction from the rest of the UK, something which May branded ‘unacceptable’.
GBP/AUD Exchange Rate Rallies on Surging Inflation Figures
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate rallied from a one-week low this morning as markets reacted to the UK’s latest Consumer Price Index (CPI).
At the time of writing the GBP/AUD exchange rate is currently holding close to today’s opening levels, having rallied around half a cent from its early losses this morning, trading at an inter-bank rate of AU$1.819.
Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Rallies as UK Inflation Surges
The Pound (GBP) found its feet again this morning, recouping some of the losses incurred overnight as markets welcome an upswing in the UK’s latest inflation reading.
According to data published by the Office for National Statistics (ONS), domestic inflation jumped from 2.5% to 2.7% in August, easily beating forecasts of a modest slide to 2.4% and rising to its highest levels in six months.
#UnitedKingdom Annual #Inflation at 2.7% https://t.co/SCWOFuSgiG pic.twitter.com/YEBh2AR5fr
— Trading Economics (@tEconomics) September 19, 2018
While the surge in inflation prompted some concerns regarding pressures on real wages, the broad reaction to the data was positive, with markets speculating that higher inflation will help bolster the case for an early rate hike from the Bank of England.
Australian Dollar (AUD) Exchange Rates Defies Trade Uncertainty to Trend Higher
At the same time the Australian Dollar (AUD) is trading robustly this morning despite escalating trade tensions between the US and China.
The latest escalation comes as President Donald Trump imposed 10% tariffs on $200bn worth of goods entering the US from China, causing Beijing to respond with its own tariffs on $60bn worth of US goods.
While the escalation in trade tensions between the world’s two largest economies has traditionally been AUD negative due to markets fearing a potential trade war could disrupt Australia’s largely export focused economy, the current movement in the ‘Aussie’ defies these expectations.
One explanation for the Australian Dollar’s surprising resilience is that markets had already largely priced in the move by the US, while short positions in AUD have also lent some strength to the currency.
David de Garis, Economist at the National Australia Bank said:
‘It’s a little surprising that markets have taken the news in its stride. All priced in? Perhaps. For the AUD, we would also note that while not at record shorts, positioning has been very short and the absence of more bad news has likely contributed to its mini bounce.’
GBP/AUD Exchange Rate Forecast: Contraction in UK Retail Sales to Pressure Sterling?
Looking ahead to the latter half of this week’s session, the Pound Australian Dollar (GBP/AUD) exchange rate may come under further pressure as the UK publishes its latest retail sales figures.
Economists forecast that after a surge in sales growth in July thanks to the World Cup and balmy weather, sales will have moderated again in August, leading to a slight contraction in growth and likely dragging on Sterling.
In the meantime, the Reserve Bank of Australia (RBA) is scheduled to publish its quarterly bulletin during the overnight session.
This could lead to the Australian Dollar pulling back tomorrow should the bank’s snapshot of growth reinforce its cautious outlook in regards to heightened trade tensions dragging on domestic growth.