Pound Australian Dollar (GBP/AUD) Exchange Rate Benefits as Australian Inflation Expectations Drop

Softer Australian Inflation Expectations Offer Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Support

A sharper-than-expected decline in February’s Australian consumer inflation expectations survey helped to lift the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate.

As the inflation expectation dropped from 4.7% to 4.0% this appeared to point towards a lower level of consumer confidence within the Australian economy.

The Australian Dollar (AUD) also came under pressure thanks to news that the Covid-19 infection rate had surged higher overnight.

With the virus looking set to have a more significant impact than the 2013 SARS outbreak investors saw little reason to favour the risk-sensitive currency, instead buying into safe-havens such as the US Dollar (USD).

Jump in RICS House Price Index Benefits Pound Sterling

Support for Pound Sterling (GBP) picked up this morning, meanwhile, thanks to a surge in the latest RICS house price balance.

As house prices saw a jump of 17% in January markets saw fresh cause for optimism, betting that the UK housing market bounced back at the start of 2020.

Although it remains to be seen whether this recovery can be sustained in the months ahead, given lingering uncertainty over the future UK-EU trade relationship, GBP exchange rates still benefitted from the positive showing.

However, with French President Emmanuel Macron pushing for the EU to adopt a tougher stance in trade negotiations a lingering sense of Brexit-based anxiety limited the potential for GBP/AUD exchange rate gains.

Stronger UK Wage Growth May Boost GBP/AUD Exchange Rate Further

The mood towards the Pound could see a fresh improvement on the back of next week’s set of UK labour market data, though.

If December’s average weekly earnings data shows an uptick as forecast this may encourage the GBP/AUD exchange rate to push higher.

A stronger level of UK wage growth could pave the way towards higher levels of consumer confidence and spending in the months ahead, reducing the risk of an economic slowdown.

Even so, an increase in January’s unemployment claimant count may still put a dampener on the Pound.

Signs that the labour market has run out of slack could spur investors to sell out of the Pound once again, given the potential for further disruption down the line.

Covid-19 Fears Look Set to Limit Australian Dollar Upside

Anxiety over Covid-19 and the health of the global growth outlook could keep the Australian Dollar under pressure for some time to come.

Unless the infection rate shows sustained signs of stabilising markets are likely to remain in a jittery mood as the risk of a greater economic impact grows.

As long as the odds of a potential global slowdown continue to mount the risk-sensitive Australian Dollar looks set to soften, following in the wake of weaker base metal prices.

With the Reserve Bank of Australia (RBA) already showing signs of caution over the impact of the virus on Australian growth any support for the Australian Dollar could prove limited.

Louisa Heath

Contact Louisa Heath