Postive Australian Inflation Gauge Dents Pound Australian Dollar (GBP/AUD) Exchange Rate
While the TD Securities inflation gauge for December showed some slowing on the month this failed to particularly benefit the Pound to Australian Dollar (GBP/AUD) exchange rate.
Despite the slowdown the inflation gauge remained in excess of the key 2% level, clocking in at 2.3%.
This suggests that inflationary pressure within the Australian economy is running at a decent level, even though the corresponding official data is unlikely to prove quite so bullish in nature.
With the Reserve Bank of Australia (RBA) still looking set to leave interest rates on hold for the foreseeable future the upside potential of Australian Dollar (AUD) exchange rates was limited on Monday morning.
If indicators continue to point towards rising inflation, though, this could give the RBA cause to reconsider its current policy outlook.
A weaker US Dollar (USD) also helped to support the antipodean currency as market risk appetite remained heightened.
Hopes For Softer Brexit Fail to Sustain GBP/AUD Exchange Rate Uptrend
The latest data from the UK housing market failed to particularly boost the GBP/AUD exchange rate, meanwhile, in spite of a slight uptick on the year.
While the Pound (GBP) saw strong gains ahead of the weekend, spurred by reports of softening sentiment amongst EU nations regarding Brexit, it struggled to maintain this momentum for long.
A high level of uncertainty over the ultimate outcome of negotiations remains, especially if a new ‘grand coalition’ in Germany pushes for a less lenient deal.
Demand for the Pound also weakened as markets braced for the latest UK consumer price index data, with inflation forecast to ease back to 3% on the year in December.
As a weaker inflation reading could encourage the Bank of England (BoE) to leave interest rates on hold for longer the GBP/AUD exchange rate remains vulnerable to downside pressure.
GBP/AUD Exchange Rate Losses Forecast on Strong Australian Employment Data
Further losses could be in store for the GBP/AUD this week if Thursday’s raft of Australian employment data points towards further tightening within the domestic labour market.
While no change is forecast in the headline unemployment rate the report is still likely to paint a positive picture of the Australian jobs market, ending 2017 on a relatively strong footing.
Even though the measure is notoriously volatile investors remain confident in the prospect of the labour market continuing to tighten in 2018, as analysts at the National Bank of Australia (NAB) commented:
‘While NAB expects an unchanged unemployment rate for this month, the trend is firmly lower in 2018.
‘Trend employment growth currently exceeds the level needed to keep the unemployment rate unchanged and at +22k is enough for it drop 0.1 every 2-3 months.’
If signs point towards the Australian economy keeping up this positive momentum over the coming months, or Thursday’s figures surprise to the upside, the GBP/AUD exchange rate looks set to weaken.