Recovery in Home Loans Failed to Boost Australian Dollar (AUD/GBP) Exchange Rate
The Australian Dollar to Pound (AUD/GBP) exchange rate struggled to find any particular momentum overnight, even in the wake of positive Australian data.
While Australian home loans unexpected rebounded by an impressive 2.1% on the month in November investors failed to take this as a source of encouragement.
Demand for the Australian Dollar (AUD) was largely diminished as a result of a general weakening in market risk appetite, driven by a stronger US Dollar (USD).
A slight slowing in domestic investment lending also put some degree of pressure on AUD exchange rates, giving investors little incentive to revise their view of the Australian economic outlook.
The recent bullish run of the Australian Dollar has invited a sense of bearishness, as a stronger ‘Aussie’ could give the Reserve Bank of Australia (RBA) greater cause for concern.
Pound (GBP) Unable to Capitalise on BoE Wage Growth Optimism
Commentary from Bank of England (BoE) policymaker Michael Saunders helped to limit the downside bias of the AUD/GBP, meanwhile.
Although Saunders expressed confidence over the prospect of UK wage growth picking up materially over the course of 2018, as pressure on businesses builds, his tone was not overly hawkish in nature.
Indeed, the policymaker warned that any interest rate increase is likely to be ‘limited and gradual’, even if wages pick up as envisioned.
This limited the appeal of the Pound (GBP) during Wednesday’s European session, further diminishing the odds of any imminent interest rate hike coming from the BoE.
Worries over Brexit similarly continue to weigh on GBP exchange rates, as strategists at Brown Brothers Harriman noted:
‘News reports suggest that the EU has toughened its demands for a transition deal. The negotiators were given more specific terms that will complicate the talks. The UK is being asked to adhere to EU rules on immigration and rights of EU citizens to live in the UK during the transition, as well as agree to no new trade agreements and no renegotiating fishing rights during the transition. In essence, these latest conditions appear to make more concrete what a “standstill” transition means.’
AUD/GBP Exchange Rate Gains Forecast on Solid Australian Unemployment Report
Later today the AUD/GBP exchange rate could find a rallying point on the back of December’s raft of Australian unemployment data.
Although forecasts point towards no change in the unemployment rate markets are looking to see another solid headline employment change figure.
As long as the domestic labour market continues to show signs of tightening the mood towards the Australian Dollar is likely to improve, in spite of the notoriously volatile nature of the report.
On the other hand, any softening of the participation rate could put significant downside pressure on AUD exchange rates, exposing a persistent lack of confidence over the underlying strength of the Australian economy.