Pound Australian Dollar (GBP/AUD) Exchange Rate Under Pressure as May Pushes for Three-Month Brexit Extension

Brexit Deadline Disagreement Weighs on GBP/AUD Exchange Rate

UPDATE: Disappointment greeted news that Theresa May will only seek a three-month extension of the Brexit deadline, leaving Pound Sterling (GBP) on a downtrend.

As EU officials pushed back against the length of the proposed extension, which would see the UK participate in the latest European parliamentary elections, this added to the bearishness of GBP exchange rates.

The Australian Dollar (AUD), meanwhile, benefitted from the relative weakness of the US Dollar (USD) ahead of tonight’s Federal Open Market Committee (FOMC) interest rate decision.

Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Muted in spite of Unemployment Improvement

The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate failed to capitalise on the latest raft of UK labour market data, even as the unemployment rate unexpectedly improved.

Even as the unemployment rate fell to a 44-year low of 3.9% this was not enough to shore up Pound Sterling (GBP) this morning.

While the labour market continued to shake off any signs of Brexit-based anxiety a sense of political uncertainty still hung over GBP exchange rates.

After the House of Commons Speaker John Bercow ruled out a third meaningful vote on Theresa May’s Brexit deal unless it is ‘fundamentally different’ this left the Pound on a weaker footing.

With just days to go before the Article 50 deadline markets were unsettled by the prospect of continued uncertainty, weighing heavily on the GBP/AUD exchange rate.

Neutral RBA Minutes Limit Australian Dollar (AUD) Exchange Rate Momentum

March’s Reserve Bank of Australia (RBA) meeting minutes offered little in the way of support to the Australian Dollar (AUD), meanwhile.

As policymakers signalled an intention to leave interest rates on hold in the near term this left AUD exchange rates on a soft footing.

The RBA expressed continued concern over the health of the domestic housing sector and underwhelming economic growth, even as it acknowledged the positive nature of labour market data.

All in all, with interest rates looking set to remain on hold for some time yet to come investors saw limited incentive to favour the Australian Dollar.

GBP/AUD Exchange Rate Looks for Boost on Steady UK Inflation

Tomorrow’s UK consumer price index data could offer the GBP/AUD exchange rate a stronger rallying point.

While forecasts point towards a steady rate of annual inflation, remaining below the Bank of England’s (BoE) 2% target, this may still encourage Pound gains.

As long as inflationary pressure continues to lag behind stronger average weekly earnings data GBP exchange rates are likely to benefit from the prospect of increased wage growth.

Higher levels of wages would give consumers a greater buffer from any Brexit-based uncertainty, something which could support stronger economic growth in the months ahead.

Although the BoE looks set to maintain a neutral policy bias at its March policy meeting this is unlikely to weigh on the Pound.

Unemployment Data Forecast to Offer Limited Support to Australian Dollar (AUD)

In the wake of the RBA minutes the impact of Thursday’s Australian labour market data could prove muted.

With the central bank on course to leave interest rates on hold any improvement in the employment data is unlikely to sway the policy outlook at this stage.

On the other hand, if the unemployment rate shows any signs of loosening this could see AUD exchange rates come under renewed pressure.

Weakening global market risk appetite may also dent the Australian Dollar in the days ahead, with trade tensions between the US and China still unresolved.

Louisa Heath

Contact Louisa Heath