Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rate Loses Traction amid US-China Trade Optimism

Hopes of US-China Trade Progress Boost Australian Dollar (AUD) Exchange Rates

Hopes of potential progress towards a resolution of the US-China trade dispute offered support to the Australian Dollar (AUD) this morning.

Positive comments from both the US and Chinese leaderships fuelled hopes that any further escalation of the trade dispute may still be averted.

With the US looking set to extend its deadline for an agreement, avoiding the imposition of additional tariffs on Chinese goods at the start of March, investors were inclined to take a more optimistic view.

This gave the risk-sensitive Australian Dollar a boost against its rivals, even though some degree of wariness over the volatility of the Trump administration persists.

Underwhelming House Price Data Limits Pound Sterling (GBP) Upside

February’s Rightmove house price index did little for the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate, meanwhile.

As prices only saw a 0.2% uptick on the year the UK housing market looks set to maintain its sluggish pace in the months ahead, to the detriment of the wider economy.

News that seven Labour MPs have broken away to form an independent bloc also gave Pound Sterling (GBP) pause.

The move suggests that the UK political landscape remains as volatile as ever, with Theresa May’s ability to win support for her Brexit proposal looking increasingly limited.

Increased division within Parliament will not ease market worries over the prospect of a potential no-deal Brexit, keeping the Pound under pressure.

Australian Dollar (AUD) Vulnerable to Dovish RBA Minutes

Demand for the Australian Dollar looks set to deteriorate, however, on the back of February’s Reserve Bank of Australia (RBA) meeting minutes.

Following dovish comments from RBA Governor Philip Lowe markets are expecting a cautious set of minutes, leaving AUD exchange rates exposed to selling pressure.

As long as the odds of the RBA cutting interest rates pick up further the mood towards the Australian Dollar is likely to sour sharply.

If the minutes offer a more balanced view, however, suggesting that the next move in interest rates could be either up or down this may put a dampener on any GBP/AUD exchange rate gains.

Accelerating UK Wage Growth to Support GBP/AUD Exchange Rate Gains

The GBP/AUD exchange rate may find a stronger rallying point on Tuesday, as forecasts point towards another uptick in wage growth.

An increase in UK average weekly earnings in the three months to December would see wages extend their lead against inflation.

While stronger wage growth is unlikely to be enough to encourage the Bank of England (BoE) to consider raising interest rates in the near term this could still shore up the Pound.

A solid performance from the latest labour market data may also encourage confidence in GBP exchange rates, provided that employment shows signs of picking up further.

Uncertainty over Brexit, though, could still limit the potential gains of the GBP/AUD exchange rate for some time to come.

Louisa Heath

Contact Louisa Heath