Pound Australian Dollar (GBP/AUD) Exchange Rate Weakens in Spite of Underwhelming Australian Inflation
A weaker reading from July’s Australian consumer inflation expectation was not enough to keep the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate on a stronger footing.
While investors were disappointed to find that the headline inflation expectation had eased from 4.2% to 3.9% the mood towards the Australian Dollar (AUD) still picked up on Thursday morning.
After seeing sharp losses on the back of mounting trade tensions between the US and China AUD exchange rates found a floor.
Even though the threat of a further escalation of the US-China trade war continues to hang over the global economy the Australian Dollar still seized the opportunity to recover some of its recent losses.
However, AUD exchange rates remain vulnerable to downside pressure in the near term, given the lack of supportive domestic data.
GBP/AUD Exchange Rate Remains Muted on Brexit Uncertainty
While the RICS house price balance modestly bettered forecast in June the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate struggled to capitalise on the improvement.
Worries remain over the outlook of the UK economy due to the high degree of uncertainty that still surrounds the likely outcome of Brexit negotiations.
Even if Theresa May rallies support amongst Conservatives for her softer Brexit proposals these are still subject to the agreement of EU negotiators.
If the EU rejects the new Brexit white paper, however, this could drag Pound Sterling (GBP) lower across the board, putting further pressure on the approaching deadline.
As analysts at Danske Bank noted:
‘Yesterday, sources suggested that EU officials are telling businesses that the chances of a ‘no-deal’ Brexit are as high as 50% and are urging companies to ramp up their contingency plans.’
Any fresh increase in domestic political tensions may also send the GBP/AUD exchange rate lower.
Rising UK Inflation Forecast to Boost Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate may find a rallying point with the release of June’s UK consumer price index data.
Forecasts point towards a fresh uptick in price pressures on the year, something which would give the Bank of England (BoE) additional incentive to raise interest rates in August.
Higher levels of domestic inflation would bolster the appeal of the Pound, in spite of the negative impact that prices pressures have on consumers.
If the CPI fails to strengthen in line with forecasts, however, the GBP/AUD exchange rate could extend its downtrend further.
Signs that inflation is weakening may undermine the case for another BoE rate hike, leaving the Pound on a softer footing.
Focus will also fall on the Reserve Bank of Australia’s (RBA) latest meeting minutes, which are likely to underline the bank’s less hawkish policy outlook.
A less confidence set of RBA minutes could help to shore up the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate.