GBP/AUD Appreciates Following Wild Week of Swings for British Currency
The Pound to Australian Dollar (GBP/AUD) exchange rate has risen around 0.3% this morning, building on its gains from the last session.
Last week saw broad Pound weakness in the wake of the latest round of Brexit turmoil, with UK PM Theresa May first delaying a parliamentary vote on Brexit and then managing to fend off a vote of no-confidence in her leadership, instigated by a number of her Conservative colleagues.
May’s troubles were not over, however, with the EU then rebutting her request to amend certain aspects of the Brexit agreement, in particular the plans for the Irish backstop provision.
This lack of support caused broad Pound losses, however the Australian Dollar was unable to capitalise as a set of worryingly weak Chinese data caused a flight to safety, hammering AUD and other risk-correlated currencies in the process.
GBP/AUD Appreciates as More Signs of Bursting Housing Bubble Emerge
More signs of a property market in sharp decline have lowered confidence in the Australian outlook, dampening demand for the Australian Dollar (AUD).
House prices are continuing to fall sharply, led by declines in the cities of Sydney, Melbourne and Perth, where prices have plunged 1.6% in a month.
The city leading the fall is Sydney, where property prices have now plunged over 8% in the past year, leading analysts to fear that Australia’s housing bubble has popped.
Adding to the sense of malaise, the market is being flooded with properties that are for sale, with Sydney alone having over 22% more unsold properties in the past year.
Owing to the size of the real estate sector in Australia, any further signs of s slumping property market have the potential to weaken the Australian Dollar.
Rising Iron Ore Prices on China Infrastructure Plans give AUD/GBP a Lift
Last week saw something of a rebound in iron ore prices, with benchmark 62% fines jumping 1.4% on Thursday alone, giving the Australian Dollar (AUD) a helping hand.
This is the highest price it’s seen since the end of November, and was caused by increased demand from China’s steel industry following reports of renewed infrastructure investment.
Darren Toh, a steel and iron ore data scientist at Tivlon Technologies, told Reuters:
‘There is this expectation of Chinese government stimulating more growth in 2019 just after the Chinese New Year.’
With iron ore being one of Australia’s key exports, and further strengthening of the price will likely lead to support for AUD/GBP.
Pound Australian Dollar (GBP/AUD) Outlook: RBA Minutes and BoE Meeting to Drive Exchange Rate over Coming Week
Sterling is muted so far this week as traders are hesitant to make any moves ahead of Thursday’s Bank of England (BoE) interest rate decision.
Due to a lack of data and – so far – no new Brexit headline to rock the boat, GBP/AUD is likely to remain rangebound for the first half of this week unless there is a major change in risk sentiment.
In terms of data releases we have entered the quiet period before Christmas, but there will be some UK inflation data coming out on Wednesday in the form of November’s retail, consumer and producer price indexes.
Broadly speaking, UK inflation is expected to fall across the board, meaning the chances of there being a rate hike on Thursday will diminish even further from already very low expectations.
Australia’s new homes sales and ANZ business confidence figures are due out tomorrow morning, although no consensus expectation for either has yet been published.
Before then, however, we’ll get to see the Reserve Bank of Australia’s (RBA) latest meeting minutes from the rate decision two weeks ago.
As ever, any signs of hawkish talk among the policymakers is likely to send AUD higher, while dovish talk will send it lower in the GBP/AUD exchange rate.