Pound Australian Dollar (GBP/AUD) Exchange Rate Rallies as Aussie Unemployment Rises

Rising Australian Unemployment Fuels Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Gains

As August’s Australian unemployment rate picked up to 5.3% this encouraged the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate to recover ground.

With the labour market showing fresh signs of loosening confidence in the wider economic outlook naturally diminished, to the detriment of the Australian Dollar (AUD).

Although this increase was partly driven by an increase in the corresponding participation rate investors still took the opportunity to sell out of the antipodean currency.

Given the less hawkish nature of the Reserve Bank of Australia’s (RBA) September meeting minutes markets are wary of the prospect of a potential interest rate cut, dampening the appeal of the Australian Dollar.

Pound Sterling (GBP) Shrugs Off Retail Sales Contraction

Disappointing UK retail sales data was not enough to drive Pound Sterling (GBP) into a fresh decline this morning.

Even though sales excluding auto fuel saw a surprise -0.3% contraction on the month in August, pointing towards a lower level of consumer demand, GBP exchange rates largely shrugged off the data.

While this decline suggests that recent political anxiety has weighed on the minds of UK consumers the wider picture remained relatively positive, with sales still picking up over the longer term.

As markets braced for the Bank of England’s (BoE) policy announcement the downside potential of the GBP/AUD exchange rate proved limited.

Dovish BoE Signal May Dent GBP/EUR Exchange Rate

Although no change in monetary policy is expected from BoE policymakers today the potential for fresh GBP exchange rate volatility remains.

Signs of increased dovishness within the Monetary Policy Committee (MPC) could see the Pound fall out of favour as the potential for an interest rate cut grows.

If policymakers express greater caution on the subject of Brexit this may also weigh heavily on GBP exchange rates, especially as the odds of a no-deal scenario still appear heightened.

On the other hand, evidence that the BoE remains willing to leave monetary policy on hold in the months to come may encourage the GBP/AUD exchange rate to extend its uptrend further.

Global Growth Slowdown Limits Australian Dollar (AUD) Potential

In the wake of the Organisation for Economic Co-operation and Development’s (OECD) decision to downgrade its global growth forecasts the outlook for the risk-sensitive Australian Dollar appears muted.

Although recent signs of a thaw in US-China trade tensions helped to encourage AUD exchange rates worries over the outlook of the global economy remain.

With tensions in the Middle East continuing to flare the risk of a more prolonged global growth slowdown persists, limiting the appeal of the Australian Dollar.

As a result, AUD exchange rates are likely to remain on the back foot in the days ahead as slowing global growth looks set to drag on the Australian economy.

Louisa Heath

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