Pound Australian Dollar (GBP/AUD) Exchange Rate Shrugs Off Higher Australian Consumer Confidence
A modest improvement in the Westpac consumer confidence index was not enough to weigh down the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate on Wednesday morning.
While consumer sentiment picked up in May this was overshadowed by underwhelming Chinese industrial production and retail sales data, which prompted a resurgence in market risk aversion.
With the world’s second largest economy continuing to show signs of weakness the mood towards the risk-sensitive Australian Dollar (AUD) naturally soured.
As the Australian Dollar commonly functions as a proxy for the Chinese economy the raft of weak data left investors with little incentive to favour the antipodean currency over its rivals.
A disappointing first quarter Australian wage price index reading also limited the strength of AUD exchange rates, as markets continue to weigh up the odds of any future Reserve Bank of Australia (RBA) monetary easing.
Lack of Brexit Progress Continues to Weigh on GBP/AUD Exchange Rate
With MPs now set to vote on Theresa May’s proposed withdrawal agreement once again at the start of June demand for Pound Sterling (GBP) showed some signs of recovery.
Although MPs from across the political spectrum look set to vote down the bill markets remain hopeful of the prospect of meaningful progress towards a final deal.
However, unless signs of cross-party agreement begin to emerge Brexit-based uncertainty looks set to weigh on the economic outlook for the foreseeable future.
As long as the Brexit issue looks set to persist the appeal of the Pound is likely to prove limited, especially given the absence of any fresh UK data this week.
Without evidence of a political breakthrough the GBP/AUD exchange rate looks vulnerable to continued downside pressure in the days ahead.
Underwhelming Unemployment Set to Dent Australian Dollar (AUD)
Demand for the Australian Dollar could falter once again on Thursday, however, if April’s raft of labour market data fails to impress.
Forecasts point towards the headline unemployment rate holding steady on the month at 5.0%, even though a weaker employment change figure is anticipated.
Evidence of a loosening labour market could drag AUD exchange rates down, given the RBA’s concern with the lack of improvement in the unemployment rate.
As analysts at TD Securities commented:
‘In the 7 May Policy Statement, the RBA made clear it is firmly focused on further progress in lowering the unemployment rate. We look for a small lift to 5.1%, nothing to a central bank, but combined with a fall in full-time employment could temporarily weigh on the AUD and give July OIS rate cut odds a boost.’
If the unemployment rate rises this could give the GBP/AUD exchange rate a solid rallying point ahead of the weekend, especially if mounting US-China trade tensions continue to limit market risk appetite.