The Pound has traded poorly against the Australian Dollar recently, dropping by -0.7%. This has been caused by a widening of the difference between UK incomes and the rate of inflation.
Pound Devaluation Likely if Wage to Inflation Gap Expands
Future Pound losses could be triggered by upcoming wage growth figures, if they indicate a continual wage squeeze for UK consumers.
This will be evident if UK wages continue to grow at a rate slower than the rate of inflation, which seems probable given 2017 forecasts.
Even though the UK employment situation is apparently improving, income conditions for those in work remain poor. This could create future problems for the UK economy, such as sliding retail sales due to more cautious consumer spending.
Commenting on the disparity between rising employment and falling incomes has been Dr John Philpot, Director of think-tank The Jobs Economist;
‘Hard times and near full employment make strange bedfellows, highlighting the extent to which a de-regulated labour market with an abundance of workers available to fill low wage vacancies has altered the UK jobs landscape.’
Australian Dollar Forecast: Will RBA Hint at AUD-Boosting Interest Rate Hike?
Following on from the news that Australia has been going 103 quarters without a recession, the Australian Dollar may rise in the future on Reserve Bank of Australia (RBA) news.
The RBA last cut interest rates in August 2016, lowering the rate from 1.75% to 1.50%. Since then, the rate has remained untouched, but this could change in the future.
As the 103 quarters figure shows that the Australian economy can ‘roll with the punches’ of interest rate decisions and variable economic conditions, a 2017 interest rate hike is not out of the question.
Such a decision could trigger an Australian Dollar rally, although it might worsen the situation for mortgage payers in a currently hot housing market. If the housing market cools then the RBA may be more likely to raise interest rates, as it would be less likely to create unfavourable conditions for home buyers.
On the other hand, the latest Australian GDP figures actually showed slowing growth in Q1, despite remaining positive overall. This means that the RBA may put off near-term rate hike plans in favour of waiting and watching for future GDP shifts.
Recent Interbank GBP AUD Exchange Rates
At the time of writing, the Pound to Australian Dollar (GBP AUD) exchange rate was trading at 1.6789 and the Australian Dollar to Pound (AUD GBP) exchange rate was trading at 0.5955.