G7 Summit Curbs Investor Demand for Riskier Assets – Pound Australian Dollar (GBP/AUD) Exchange Rate Capitalises
Sterling traded higher against the Australian Dollar (GBP/AUD) on Friday, bolstered by a sudden decrease in risk appetite amongst the markets in the build-up to the Group of 7 (G7) summit in Canada.
US President Donald Trump is thought to be heading into potentially tense talks at the meeting, with his steel and aluminium tariffs and tougher trade negotiations with Canada and the EU expected to take centre stage.
If relations continue to deteriorate then we could see the ‘Aussie’ Dollar come under even greater pressure – with any sign of worsening trade relations potentially threatening Australia’s volatile commodity-based economy.
Sterling, on the other hand, has been rather resilient thus far, with investors favouring it over the riskier picks like AUD, NZD and indeed the Canadian Dollar (CAD), which could see drastic movement if President Trump continues to confront Canada on their extensive tariff-protected dairy industry.
UK Consumer Inflation Expectations Hold Strong – Pound (GBP) Exchange Rates Climb Higher
The Pound Australian Dollar (GBP/AUD) exchange rate also gained support on Friday in response to hawkish expectations in the latest BoE/TNS UK inflation attitudes survey.
According to the survey, consumer price inflation in the UK is expected to push at 2.9% in two years’ time and 3.6% in five years – with the latter reading upwardly revised from the previous expectation of 3.4%.
The survey also revealed that the majority of the public predicts UK interest rates to rise over the next 12 months – an outlook seemingly shared by analysts who predict a rate rise as soon as August this year.
This outlook contrasted the sentiment of the Reserve Bank of Australia (RBA) somewhat – which recently asserted that keeping rates at historical lows is still beneficial for the Australian economy.
Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: UK Inflation on the Horizon
The Pound Australian Dollar (GBP/AUD) exchange rate could encounter greater volatility next week as investors respond to a fleet of significant data releases from the UK.
These will include manufacturing production, industrial production, construction output and trade balance statistics for April – all due on Monday, followed by the labour market readings on Tuesday and the highly significant consumer price inflation result, due on Wednesday.
If inflation remains above the bank’s target then we could see GBP/AUD rally even higher.
If it continues to fall, however, then it could dash investor hopes for a rate hike this summer and leave GBP/AUD trading lower.