Pound Australian Dollar (GBP/AUD) Exchange Rate Stumbles as Australian Inflation Rises

Australian Inflation Uptick Dents Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate

As the odds of the Reserve Bank of Australia (RBA) adopting a dovish policy outlook continued to weaken the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate stumbled.

Demand for the Australian Dollar (AUD) picked up in the wake of Australia’s third quarter consumer price index data, with the headline inflation rate ticking up from 1.6% to 1.7%.

However, the positive impact of the inflation data was ultimately limited thanks to a lack of uptick from the corresponding quarterly consumer price index reading.

With the likelihood of an imminent breakthrough in US-China trade relations diminishing, following the abrupt cancellation of the APEC summit, support for the risk-sensitive Australian Dollar faded.

Political Jitters Limit Potential for Pound Sterling Gains

With the UK gearing up for its third general election in four years Pound Sterling (GBP) struggled to find any particular momentum against its rivals, meanwhile.

As the withdrawal agreement looks set to remain on the back burner until after the December election a sense of political and economic uncertainty is likely to hang over the UK for some time to come.

This gave investors limited reason to favour the Pound today as existing worries over the underlying health of the UK economy remain.

Another underwhelming month for the BRC shop price index also put a dampener on GBP exchange rates, with inflationary pressure appearing on track to ease further.

Softer Consumer Confidence Set to Drag on GBP Exchange Rates

A similarly disappointing showing from October’s GfK consumer confidence index could see the Pound fall further out of favour tomorrow.

Forecasts point towards another monthly deterioration in consumer sentiment, reflecting the anxiety and sense of uncertainty stemming from the unresolved issue of Brexit.

As lower levels of consumer confidence are likely to translate into weaker levels of economic activity, as domestic spending falls, a weak reading here could weigh heavily on GBP exchange rates.

Even so, the diminished risk of a no-deal Brexit scenario may still help to limit the downside potential of the Pound in the near term, in spite of the latest political jitters.

Weakening Export Prices Forecast to Weigh on Australian Dollar

Confidence in the Australian Dollar may receive a fresh blow on Thursday, however, if the third quarter import and export price indexes weaken as forecast.

With export prices expected to show a sharp -0.5% contraction on the quarter worries over the strength of the economic outlook could mount.

The latest signals from the Chinese economy may also put pressure on the risk-sensitive Australian Dollar, thanks to its position as a common proxy for China’s economic performance.

As a result, any fresh evidence that the world’s second largest economy is losing its momentum is likely to offer the GBP/AUD exchange rate a temporary boost as market risk appetite falters.

Louisa Heath

Contact Louisa Heath