Australian Dollar Pound Exchange Rate Dips Ahead of Labour Market Data
May’s Westpac consumer confidence index proved disappointing as sentiment weakened on the month, leaving the Australian Dollar on a softer footing.
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As Bill Evans, Chief Economist at Westpac, noted:
‘Evidence around the labour market in this survey is somewhat more encouraging. However, with a flat response to the Budget, respondents remaining concerned about their finances and no signs of any improvement in wages prospects, the risks of weak household spending feeding back onto employment and investment will remain a concern for policy makers.’
Although the first quarter wage cost index was in line with forecasts this was not enough to boost the Australian Dollar Pound exchange rate.
Further volatility is likely ahead of the latest raft of Australian employment data, with market expectations for the data limited.
Forecasts point towards a steady headline unemployment rate of 5.9%, although this is unlikely to offer the ‘Aussie’ any particular cause for confidence.
Sentiment is likely to be dented if the corresponding participation rate indicates a lower level of economic activity within the populace, highlighting continued slack in the labour market.
With the latest developments in the Trump administration weighing heavily on risk appetite the mood towards the ‘Aussie’ is likely to remain muted ahead of the weekend.
Demand for the Pound picked up overnight, meanwhile, as the UK unemployment rate unexpectedly fell to 4.6% in the three months to March.
This encouraged investors to pile back into Sterling, even as the latest weekly earnings data indicated that rising inflationary pressure continues to outpace wage growth.
Given that the Bank of England (BoE) looks set to maintain its current neutral outlook on monetary policy for the foreseeable future this does not bode well for the outlook of the UK economy.
With consumers set to see an increasing squeeze on their finances there is likely to be an increased reining in of spending, eroding one of the main drivers of recent economic activity.
Nevertheless, this was not enough to boost the AUD GBP exchange rate as the downside pressure on the Pound remained somewhat limited during Wednesday’s European session.
Confidence in Sterling could strengthen more substantially if April’s retail sales point towards a greater level of consumer resilience.
Sales are forecast to have rebounded solidly on the month after a -1.5% contraction, although at least part of any recovery could be attributed to the timing of the Easter holidays.
If the figures fail to demonstrate solid levels of consumer spending, however, the AUD GBP exchange rate may return to an uptrend.