Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Under Pressure as UK Data Disappoints
An unimpressive raft of UK data saw the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate shedding further ground at the start of the week.
Investors were not impressed to find that the visible trade deficit had unexpectedly widened from -12 billion to -14 billion in April.
This weaker showing naturally undermined confidence in the outlook of the domestic economy, highlighting the relative fragility of the UK trade position at this juncture.
With a sense of Brexit-based uncertainty still hanging over the economic outlook the mood towards Pound Sterling (GBP) soured, leaving GB exchange rates on a fresh downtrend.
April’s industrial production and construction output figures also proved disappointing, showing fresh contraction as the economy struggled to find any particular steam at the start of the second quarter.
Dovish RBA Comments Forecast to Shore up GBP/AUD Exchange Rate
Comments from Reserve Bank of Australia (RBA) Governor Philip Lowe could offer a rallying point to the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate.
If Lowe indicates that the RBA is still likely to leave interest rates on hold for some time to come the appeal of the Australian Dollar (AUD) could diminish sharply.
With the RBA looking set to leave monetary policy on hold for the foreseeable future the outlook for AUD exchange rates looks distinctly limited.
A mounting sense of global market risk aversion may also weigh on the Australian Dollar over the coming days, with the threat of a full-blown trade war rising.
The increasing belligerence of the US administration over trade could help to limit the downside potential of the GBP/AUD exchange rate.
Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Vulnerable to Brexit Jitters
A stronger showing from May’s UK consumer price index data may help to boost the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate.
Any uptick in inflationary pressure is likely to encourage bets that the Bank of England (BoE) will raise interest rates again sooner rather than later.
However, if price pressures ease and UK wage growth shows signs of weakening this could keep Pound Sterling on a weaker footing.
Developments surrounding the issue of Brexit could also provoke volatility for GBP exchange rates in the near term.
As analysts at ANZ commented:
‘The EU’s chief Brexit negotiator, Michael Barnier, cast doubt on the transition plan tabled by UK PM May on Thursday. Barnier rejected the idea that the Irish backstop can apply to all of the UK. He also objected to the idea that there should be a time limit on the time given to resolving the Irish border issue – a requirement for those wanting a harder Brexit within the UK Cabinet. Overall, the comments illustrate that the two parties are still far apart ahead of the next round of negotiations.’
Unless there are signs of progress towards an agreement ahead of the next EU summit at the end of June the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is likely to remain biased to the downside.