Pound Australian Dollar (GBP/AUD) Exchange Rate Gains After Australian Inflation Misses Forecast
As the fourth quarter Australian consumer price index data fell short of forecast this encouraged the Pound to Australian Dollar (GBP/AUD) exchange rate to gain ground overnight.
While the headline inflation rate edged up from 1.8% to 1.9% on the year this was still weaker than anticipated, limiting any positive influence on the Australian Dollar (AUD).
With inflationary pressure still lagging below the Reserve Bank of Australia’s (RBA) target range the potential for any imminent shift to hawkishness seems unlikely.
As December’s private sector credit figures also disappointed this left AUD exchange rates on the back foot, with confidence in the domestic outlook still rather limited at this stage.
Although market risk appetite picked up a little in the wake of the latest US State of the Union address this failed to particularly weigh on the GBP/AUD exchange rate on Wednesday.
BoE Interest Rate Hike Hopes Drive Pound (GBP) Exchange Rate Uptrend
The GBP/AUD exchange rate was also supported by Bank of England (BoE) Governor Mark Carney’s appearance in front of the House of Lords economic affairs committee, which markets saw as more hawkish in nature.
Carney’s slightly more optimistic tone on the subject of the economic outlook encouraged investors to pile back into the Pound (GBP), boosting hopes that the BoE could raise interest rates again in the near future.
As Viraj Patel, FX Strategist at ING, noted:
‘The Governor noted that the IMF’s latest forecast of 1.5% growth for the UK economy was ‘light’, potentially signalling upside risks to the central bank’s own GDP profile. Moreover, this could alter the low growth and above-target inflation trade-off in a way that allows the BoE to press ahead with another near-term hike. We look for the MPC to retain a fairly neutral stance next week, though a hawkish tilt may give GBP a knee-jerk boost.’
While a leaked cabinet report on the likely economic impact of various Brexit scenarios spooked investors at the start of the week these jitters soon eased.
Further GBP/AUD Exchange Rate Gains Forecast on Australian Price Data
Unless the Australian economy demonstrates greater signs of strength the GBP/AUD exchange rate is likely to remain on a stronger footing in the near term.
Particular focus will fall on the fourth quarter import and export price index figures, which may offer grater encouragement over the inflationary outlook.
Rising price pressures could boost AUD exchange rates, even if anything short of a significant uptick here is unlikely to materially alter the outlook of the RBA.
Any increased hawkishness from the Federal Reserve could also see the Australian Dollar come under greater pressure in the near term, with higher odds of an interest rate hike likely to weigh on the antipodean currency.
Another strong US non-farm payrolls report may offer the GBP/AUD exchange rate further support, especially if concerns over a potential US trade war continue to fester.