‘Aussie’ Throttled by Poor Data, AUD/GBP Plummets to Near Two-Month-Low
The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate experienced a sharp drop on Wednesday morning as markets reacted to a sudden unexpected slide in Australian inflation, allowing the Pound to advance.
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Australian Dollar (AUD) Plummets on Australian CPI
After attempting to hold its ground against a surprisingly bullish Pound for almost two weeks, the Australian Dollar’s defences were undermined on Wednesday by poor data, sending the AUD/GBP exchange rate tumbling.
AUD/GBP trended at around 0.5310 before the latest Australian Consumer Price Index (CPI) report was released. The pair lost over -50 pips in the space of 10 minutes after the report was published. At the time of writing, AUD/GBP was down around -2.0% and trended in the region of 0.5207.
The key year-on-year CPI print came in at 1.3%, letting down expectations that the figure would hold steady at 1.7%.
The quarterly figure disappointed further, as forecasts that last quarter’s 0.4% would merely slow to 0.2% instead scored a surprising contraction of -0.2%.
Poor CPI was especially disappointing to investors after warnings from the Reserve Bank of Australia (RBA) that AUD was becoming overvalued – an overvaluation that would only get worse if inflation deteriorates. The Sydney Morning Herald reports that an RBA rate cut is now even more likely.
The CPI data was accompanied by the weekly Roy Morgan consumer confidence report, which indicated confidence diminished from 115.8 to 111.7.
Pound (GBP) Boosted by Solid GDP Figures
Investors have recently been favouring the Pound against many of its major rivals as fears surrounding the EU referendum ease.
New bets that a ‘Brexit’ has only a small 20% chance of happening in June are credited for spurring GBP movement and motivating the currency in spite of poor UK data and significant resistance from other currencies.
Sentiment towards Britain’s economy and the Pound was bolstered further on Wednesday evening after the UK’s latest Gross Domestic Product (GDP) report was released.
While the quarterly print showed slowed growth of 0.4% from 0.6%, this matched forecasts and as a result did not shock or throw off investor hopes.
More interestingly, the year-on-year GDP report showed that growth held steady at 2.1% in Q1 2016, despite estimations that it would slow to 2.0%.
Investor spirits towards the UK economy were generally healthy, with Capital Economics UK economist Ruth Miller stating to the BBC the slowdown was likely temporary.
“Many of the factors likely to be to blame for the first quarter’s weakness should prove short-lived. We would not be surprised if growth were to subsequently accelerate in the second half of the year, putting the economy back on track”
Australian Dollar to Pound Sterling Exchange Rate Forecast: AUD/GBP to Move on Fed Decisions
Investors are currently adjusting themselves ahead of Thursday morning’s Federal Open Market Committee (FOMC) rate decision.
At the time of writing, the Federal Reserve was expected to keep US interest rates frozen at 0.50%, but global asset markets are certain to react to any indication of when the next interest rate hike could be.
Risky currencies like the ‘Aussie’ could take a severe hit if the Fed announces plans to hike US rates sooner than expected, but if rate hike bets are delayed further into the year Australian investors are much more likely to adopt a risk-on attitude when markets open on Thursday morning.
As far as domestic influences go, Australia sees the release of March’s private sector credit reports on Friday morning, currently expected to hold steady at 6.6% – as well as a speech from Reserve Bank of Australia (RBA) policymaker Guy Debelle shortly after.
This speech could indicate to investors what the central bank’s next actions might be after this week’s poor inflation reports.
British data, on the other hand, is comparatively quiet. The Pound may move on net consumer credit or mortgage approval reports due on Friday evening. Failing that, Sterling investors will continue to move on developments in ongoing ‘Brexit’ debates.
At the time of writing, the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate trends in the region of 0.5207, while the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate trades at around 1.9195.