AUD GBP Hits 3-Week-High as Various Factors Support ‘Aussie’ Rally
The Australian Dollar has put in solid gains against the Pound this week, as both domestic and global factors push investors to buy up the risky ‘Aussie’. Sterling has been held back by uncertainty about the Bank of England (BoE) policy outlook. AUD GBP began this week trading at around 0.5903 and has since advanced to a three-week-high of 0.5977.
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Australian Dollar (AUD) Rally Continues
The Australian Dollar has been supported by numerous factors this week which have seen the already overvalued currency surging even higher against many major rivals.
Australia’s domestic ecostats have been solid this week, indicating that both business confidence and consumer confidence in the nation was improving.
Wednesday saw the publication of Westpac’s July consumer confidence survey, which improved from 96 to 96.6, the first gain for the print in over three months. Thursday’s Australian consumer inflation expectations report was solid too, rising from 3.6% to 4.4%.
On top of this, global and trade factors have supported ‘Aussie’ demand. Thursday saw the publication of China’s June trade data, which beat expectations.
Chinese exports were predicted to come in at 8.7% but instead jumped to 11.3%. As a result, China’s trade surplus rose from $40.79b to a better-than-expected $42.77b.
As China is Australia’s biggest trade partner, this bolstered market demand for the ‘Aussie’.
Lower bets that the Federal Reserve will hike US interest rates a third time before the end of 2017 have also supported the Australian Dollar, due to the currency’s higher yields.
Pound (GBP) Limp on Fading Bank of England (BoE) Speculation
Market hopes that the Bank of England (BoE) could begin to withdraw its quantitative easing (QE) program within the foreseeable future have been dampened over the last week, as only a couple of BoE officials remain hawkish amid recent underwhelming UK data.
Last week’s June PMIs and May industrial and manufacturing production stats indicated that Britain’s economy was beginning to slow down.
Brexit uncertainties have made businesses hesitant to make new investments, while the UK pay squeeze has pressured consumers to rein in spending.
This week’s UK job market data was comparatively more impressive, but has been unable to boost the Pound against a strong ‘Aussie’.
Britain’s May unemployment rate unexpectedly improved from 4.6% to a 42-year-low of 4.5%, while the wage growth excluding bonuses print beat expectations with a result of 2%.
While wage growth beat expectations, it has been unable to keep up with the fast rate of rising inflation, meaning the UK pay squeeze has worsened. These persistent economic concerns have limited BoE tightening hopes and kept the Pound under pressure.
AUD GBP Forecast: RBA Minutes in Focus
The Australian Dollar’s recent rally is unlikely to last for much longer. Analysts and Reserve Bank of Australia (RBA) officials have noted that the ‘Aussie’ is overvalued and could be in for some big drops soon.
This could be prompted depending on the tone of the RBA’s latest meeting minutes report, which will be published on Tuesday next week.
The RBA mentioned Australian Dollar value briefly in its monetary policy statement last month, but if the meeting minutes go further into detail on the issues of an overvalued ‘Aussie’ the currency could drop.
Next week will also see the publication of Australia’s June employment report. If the ‘Aussie’ is already in a downside trend, solid employment stats could limit the currency’s losses.
AUD GBP investors will be highly focused on Britain’s June inflation stats too, which will be published during Tuesday’s European session.
If UK inflation is higher than expected, investors may speculate that the BoE is under increased pressure to tighten UK monetary policy. This would lead to stronger Pound demand.
AUD GBP Interbank Rate
At the time of writing this article, the Australian Dollar to Pound exchange rate trended in the region of 0.5985. The Pound to Australian Dollar exchange rate traded at around 1.6700.