The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is trending lower on Sterling weakness as investors briefly enjoy risk-sentiment before next week’s Reserve Bank of Australia (RBA) policy statement.
Record Breaking UK Account Deficit Weighs Heavy on Unappealing Pound
The Pound looks volatile even compared to the risky commodity bloc lately as the slew of poor ecopolitical news for the UK continues.
After weeks of ‘Brexit’ arguments, the uncertainty of Britain’s economic future remains a big question in the minds of investors. Thousands of jobs in the steel industry being threatened due to the potential closing of Tata Steel UK and a record-breaking current account deficit dominated the news this week.
GBP/AUD briefly rallied at the beginning of the weak on concerns of Australia’s currency becoming overvalued, but risk-on sentiment in the global market has seen the ‘Aussie’ dragging the Pound down since.
The pair is currently down almost -0.5%, trending at around 1.8650 as risk-hungry investors favour the commodity currency vastly to the reeling Pound.
Despite positive Gross Domestic Product (GDP) data released yesterday, with the quarterly print registering growth of 2.1% year-on-year over forecasts of 1.9%, another figure released at the same time caused shock to UK investors.
Britain’s current account deficit, which Chancellor of the Exchequer George Osborne promised to tackle in his 2016 Budget, has worsened exponentially from -£20.1 billion to -£32.7b.
This destroyed forecasts of the deficit worsening only slightly (to -£20.2b), hurt Osborne’s chances of meeting deficit targets and, perhaps most notably, is the worst deficit since records began in 1948.
Australian Dollar Bullish Run Continues, Sails on Global Risk-On Sentiment
While some analysts expected a Pound bounce-back to begin, the cards remained in favour of the ‘Aussie’ this week as AUD began pushing the Pound down not just on negative UK news, but due to improved risk-sentiment in the forex market.
The Federal Reserve boss reasserted a dovish stance on interest rates earlier this week after some policymakers sparked hawkish investors with false hopes of an April rate hike last week.
Janet Yellen’s speech reignited the briefly off appetite for risk, inspiring further bullishness in the ‘Aussie’.
Australia had otherwise experienced a mostly uneventful week in terms of data and thus the Australian Dollar was largely influenced by investors hungry for risk. However, iron ore prices falling multiple days in a row after the price rally earlier this month may have slowed the AUD advance.
Iron ore, Australia’s primary commodity export, had previously seen record price hikes earlier this month and inspired feverish hunger for the nation’s commodity currency.
Could Australian Rates be Cut? Reserve Bank of Australia (RBA) Announcement Next Week
While still strong against the Pound, investors may begin to readjust their positions on the Australian Dollar early next week as they anticipate the RBA’s newest interest rate decisions on the 5th of April.
Consensus forecasts on the central bank’s decision currently do not see an interest rate cut as being particularly likely. However some analysts, such as BT Investment Management, have predicted this week that the Australian Dollar becoming overvalued could encourage the RBA to cut rates eventually.
Obviously a sudden interest rate cut would hurt appetite for the ‘Aussie’ considerably and GBP/AUD would be likely to rise regardless of Pound weakness. Iron ore prices continuing to fall could also slow AUD’s advance on the Pound.
Though unlikely to help Sterling’s chances considerably, the UK’s latest Composite PMI data is due for release next week and positive data may slow any further weakness in the Pound caused by ‘Brexit’ fears or negative developments in the Tata Steel crisis.
The Indian Steel company that currently loses £1m a day in Britain could be forced to leave the UK due to uncertain economic conditions, if this were to happen over 15,000 jobs could be affected and it would deal more than severe blows to the UK economy.
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate currently trends around 1.8650 while the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate trends in the region of 0.5257.
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