The Australian Dollar Pound Sterling (AUD GBP) exchange rate soared throughout the holidays with thin trading and the current weakness of the US Dollar (USD) proving fertile soil for the ‘Aussie’ Dollar.
AUD Exchange Rates Climb on Disappointing US Consumer Confidence Readings
The US Dollar has struggled as of late, with markets continuing to appear predominantly bearish about the recent implementation of US tax reform and December’s consumer confidence readings proving disappointing.
The Conference Board’s consumer confidence index dropped in December to 122.1, down from the modest improvement in November of 128.6 and below the forecast of 128.
This deceleration was predominantly caused by a sharp decrease in the near-term outlook for businesses and jobs, with tax reform seemingly failing to bolster the assessment readings.
Lynn Franco, Director of Economic Indicators at The Conference Board shared his thoughts on the readings:
‘Consumer confidence retreated in December after reaching a 17-year high in November. The decline in confidence was fuelled by a somewhat less optimistic outlook for business and job prospects in the coming months. Consumers’ assessment of current conditions, however, improved moderately’.
This news hurt the US Dollar, effectively allowing its ‘Aussie’ counterpart to capitalise.
Pound (GBP) Limited by Thin Trading and Disappointing Wage Forecast
Demand for the Pound remained limited on Wednesday as markets reacted to a forecast that wages in the UK will continue to prove flat.
The Resolution Foundation predicted that real wages will still be flat in 2018, also asserting that many households are pessimistic about their financial situation.
Beyond this, The Office of Budgetary Responsibility (OBR) is expected to reveal that wages have fallen by some 0.4% in 2017, whilst inflation continues to soar above 3%.
The Resolution Foundation expects this to worsen in the first few months of 2018 before eventually levelling out.
Nonetheless, this squeeze continues to limit consumer spending, something that was illustrated to a certain extent by the recent contraction in Boxing Day high-street sales.
Torsten Bell, Director at the group, shared his thoughts on the readings:
‘The good news is that things will get better next year. The bad news is we may only go from backwards to standing still, with prospects for a meaningful pay recovery still out of sight’.
AUD GBP Forecast: Australian Private Sector Credit on the Horizon
This week will feature a few pertinent ecostats for the ‘Aussie’ Dollar, most notably the Australian private sector credit readings for November – expected to decelerate from 5.3% to 5.2% – US employment figures and the highly significant US advance goods trade balance.
Looking further ahead, markets will be keen to assess the sentiment of new US Federal Reserve Chairman Jerome Powell when he replaces Janet Yellen in February.
Whilst Powell is not expected to diverge too drastically from Yellen’s position, any hawkish changes or a hawkish outlook for 2018 could kick the ‘Aussie’ Dollar back down, perhaps giving the Pound the opportunity it needs.