Pound to Australian Dollar Exchange Rate Floundering Following Pound’s Monday Drop
Following a sharp drop for the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate yesterday, the pair continues to see limp performance today so far. It was partially due to strong trade news, which boosted the Australian Dollar (AUD) outlook.
Last week saw strong gains for GBP/AUD, as the pair climbed from 1.8800 to touch on a high of 1.9154. While GBP/AUD tumbled from its best levels, the pair still closed the week at around 1.8931.
However, this week so far GBP/AUD has already shed the rest of those gains due to fresh Pound (GBP) weakness. This morning, a resilient ‘Aussie’ helped to keep GBP/AUD near its worst January levels; 1.8774.
The Pound outlook is being weighed by Bank of England (BoE) rate cut bets. Meanwhile, the Australian Dollar outlook is stronger due to market optimism around Chinese trade.
Pound (GBP) Exchange Rates Slump on Rising Bank of England (BoE) Interest Rate Cut Bets
A week ago, a January interest rate cut from the Bank of England (BoE) wasn’t something many analysts or investors were expecting. In the past few sessions though, that has changed.
Over the weekend two more BoE policymakers indicated they would be willing to cut UK interest rates, if data did not show stronger recovery.
Instead of showing recovery though, yesterday’s key UK data only exacerbated concerns that Britain’s economic outlook was worsening due to the recent political uncertainties.
In response to the data, including weaker than expected growth and production stats, BoE interest rate cut bets rose. According to Jeremy Stretch, Head of G10 FX Strategy at CIBC Capital Markets:
‘We’ve seen the probability of rate cuts going up smartly this morning and the data amplifies that risk, so it’s no surprise that Sterling is the laggard in currency markets today,
The BoE narrative and the economic data are adding to a perception that a rate cut is coming.’
The Pound remained weak on BoE interest rate cut speculation today.
Australian Dollar (AUD) Exchange Rates Resilient as China Trade Outlook Improves
The Australian Dollar is a currency often correlated to risk and trade-sentiment. As a result, stronger market sentiment in those areas since the end of last week has been supporting the ‘Aussie’.
Focus on other currencies, such as the Chinese Yuan (CNY), limited demand for the Australian Dollar today.
Still, the Yuan’s strength is due to strong Chinese trade data as well as market optimism over US-China trade relations. This is supporting the Australian Dollar as well.
Market hopes for US-China trade relations have only further risen, amid news that the US has opted to stop calling China a ‘currency manipulator’. According to Kit Juckes from Societe Generale:
‘The symbolic removal of the ‘currency manipulator’ tag from China has no great significance but it’s a reward for getting the ‘Phase 1’ trade deal over the line and markets are euphoric ahead of tomorrow’s signing ceremony.
The yuan is stronger, and is dragging trade -sensitive currencies with it.’
Pound to Australian Dollar (GBP/AUD) Exchange Rate Awaits Data to Influence Bank of England (BoE) Outlook
While politics and geopolitics have been driving the Pound and Australian Dollar a lot in recent months, the Pound outlook is now more focused on data than it has been in some time. This is due to fresh Bank of England (BoE) interest rate cut bets.
With this week’s Australian economic calendar fairly quiet, the Pound to Australian Dollar (GBP/AUD) exchange rate will be driven more by UK ecostats in the coming sessions.
Wednesday’s UK inflation rate figures could influence BoE speculation if it surprises investors. Weaker inflation would put even further pressure on the bank to cut UK interest rates sooner rather than later.
Friday’s retail sales results could also be highly influential. Meanwhile, Australian housing data will be published on Thursday and Friday.
This week’s Australian data is unlikely to be as influential, but with US-China trade developments expected in the coming days, any unexpected shifts in relations between the nations could cause Pound to Australian Dollar (GBP/AUD) exchange rate movement as well.