Australian Dollar Advances Against Pound as Australian Confidence Improves
The Australian Dollar advanced against the Pound on Wednesday. This week’s Australian confidence reports bolstered demand for the risky ‘Aussie’.
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Wednesday’s Asian session followed up with Westpac’s February consumer confidence figures. The consumer confidence index rose from 97.4% to 99.6%, with a confidence change of 2.3% from 0.1%.
This further improved ‘Aussie’ appetite after Tuesday’s NAB business confidence print for January had shown a strong rise from 6 to 10.
Continuously good news from the iron ore market this week has also left the ‘Aussie’ stronger.
News that iron ore has kept above US$90 per tonne this week has been a significant boon to the iron ore correlated Australian Dollar.
This set of upside factors for the Australian Dollar helped the currency remain strong despite mixed risk-sentiment this week.
Higher Federal Reserve interest rate hike bets would typically weaken the ‘Aussie’, but the Australian Dollar has so-far defied this on ever-high optimism for Australia’s 2017 economic outlook.
This has also made it easy for the Australian Dollar to hold its ground against the comparatively weak Pound.
A lack of fresh supportive factors for the Pound and underwhelming data have left it slumping this week, allowing AUD GBP to reach monthly highs.
Wednesday’s UK job report disappointed investors as it indicated that wage growth was already slowing at the end of 2016.
Recent inflation data also disappointed. The results indicated that, while inflation was likely to surge in 2017, it may not be enough to pressure the Bank of England (BoE) to tighten monetary policy in the mid to long-term.
Fears of slowing UK wage growth coupled with surging consumer prices have caused analysts to worry that UK citizens will be financially squeezed, which will damage the strength of the UK retail and services sectors and slow UK growth.
The Australian Dollar is likely to take focus in AUD GBP movement for the rest of the week.
Thursday’s Asian session will see the publication of Australia’s key January employment report. The unemployment rate is predicted to stay at 5.8% and the participation rate at 64.7%.
If the employment report comes in worse than expected however, the Australian Dollar will weaken. An underwhelming report would weaken optimism that the Reserve Bank of Australia (RBA) could return to a tightening bias in the mid to long-term future.
The Pound may be weakened further if Friday’s UK retail sales results from January indicate what investors have feared – that surges in UK inflation could weaken retail activity.
At the time of writing, the Australian Dollar to Pound exchange rate trended in the region of 0.61, while the Pound to Australian Dollar exchange rate traded at around 1.61.