Australian Dollar Falls from Highs against Pound as Risk-Sentiment Plunges
The Australian Dollar to Pound exchange rate has fallen back to the week’s opening levels of 0.61 as of Thursday morning. This has been largely due to investors seeing increasingly little appeal in the Australian Dollar’s high yields ahead of next week’s Federal Reserve meeting.
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The ‘Aussie’ has fallen from its highs even against a weak Pound despite recent Australian data being solid.
Investors have been engaging in a bit of profit taking following the Australian Dollar’s recent gains amid expectations that the risky currency’s bullish streak will be coming to an end in the coming weeks as the Federal Reserve increases interest rates.
With the Reserve Bank of Australia (RBA) still not near to hiking Australian interest rates, the Australian Dollar could see a long term dip in demand if interest rates rise elsewhere.
News that China, Australia’s biggest trade partner, had posted a rare trade deficit (indicating it has recently imported more than it exported) has also weakened ‘Aussie’ demand. This has caused expectations that China will begin to reign in imports from nations like Australia in the coming months.
As the bullish Australian Dollar party looked to fade, the Pound benefitted from ‘Aussie’ weakness despite a lack of supportive British data in the last week.
This week has seen GBP investors becoming increasingly jittery about the imminent start to the Brexit negotiation process, as well as the potential that UK retail activity could see a long-term slump in 2017 due to spikes in inflation and stagnant wage growth.
However, the Pound gained a little support on Wednesday following the week’s 2017 Spring Budget from UK Chancellor Philip Hammond.
While the Budget was largely uninteresting to Pound traders, the independently operated Office for Budget Responsibility (OBR) upgraded its 2017 Gross Domestic Product (GDP) forecasts for Britain following the event.
This clashed with concerns that slowing UK retail activity could significantly slow the key services sector and general British growth throughout the year.
Following Chancellor Hammond’s indication this week that the UK government would once more be trying to reduce the UK deficit, Friday’s January trade deficit report could offer the Pound some support if it comes in lighter than expected.
The deficit is predicted to have lightened from -£3.3b to -£3.1b in January.
Other UK data due for publication on Friday includes January construction output, industrial production and manufacturing production results. If any or all of these impress, the Pound is more likely to extend its recovery and AUD GBP will remain low.
However, the big event on Friday will be the US Non-Farm Payroll results. If these disappoint, March Fed rate hike bets may plunge and the Australian Dollar will look much more appealing to investors again.
At the time of writing, the Australian Dollar to Pound exchange rate trended in the region of 0.61. The Pound to Australian Dollar exchange trade traded at around 1.62.