Risk Aversion Limits Australian Dollar Pound (AUD/GBP) Exchange Rate Strength
A lingering sense of market risk aversion helped to extend the losses of the Australian Dollar to Pound (AUD/GBP) exchange rate overnight, particularly as US data continued to strengthen.
Even though the first quarter Australian terms of trade showed improvement this was not enough to shore up the Australian Dollar (AUD), with investors still sceptical over the domestic outlook.
As Andrew Hanlan, research analyst at Westpac, noted:
‘Higher commodity prices early in 2018 provided some support to mining profits and national income. However, over the year to March 2018, the terms of trade for goods moved lower, weighing on incomes.’
Positive US data put further downside pressure on AUD exchange rates, meanwhile, as the world’s largest economy continued to demonstrate robustness.
AUD/GBP Exchange Rate to Benefit From Weaker UK GDP Reading
The Australian Dollar to Pound (AUD/GBP) exchange rate could find some support this evening, however, if the latest UK gross domestic product data proves disappointing.
As forecasts point towards a downward revision of the quarterly growth rate from 0.4% to 0.3% the appeal of the Pound (GBP) is likely to diminish.
Even though any weakening is largely attributable to the adverse weather conditions that affected the country in February and March this is unlikely to diminish the negative impact of a softer reading.
Weaker economic growth would give the Bank of England (BoE) fresh cause for pause, potentially jeopardising the prospect of a May interest rate hike.
If policymakers look set to leave monetary policy on hold for longer GBP exchange rates could come under renewed pressure, with markets still placing high odds on an imminent policy move.
Rising Inflationary Pressure Forecast to Boost Australian Dollar Pound (AUD/GBP) Exchange Rate
Additional support could be in store for the Australian Dollar to Pound (AUD/GBP) exchange rate today if the first quarter Australian producer price index proves positive.
Any signs that inflationary pressure is picking up should give AUD exchange rates a solid boost, offering encouragement to the Reserve Bank of Australia (RBA).
While the RBA is unlikely to shift its monetary policy bias in the near future an uptick in price pressures could still pave the way for policymakers to take a more optimistic outlook.
On the other hand, if producer prices fail to show any acceleration in the first quarter the mood towards the Australian Dollar is likely to sour further.
A resurgence in market risk appetite may boost the AUD/GBP exchange rate, meanwhile, with focus shifting towards the latest annualised US gross domestic product report.
If the US economy shows any signs of losing momentum investors can be expected to pile back into higher-yielding assets, including the Australian Dollar.
With the strength of the US Dollar (USD) looking limited after a week of solid gains the downside potential of the Australian Dollar to Pound (AUD/GBP) exchange rate appears relatively muted today.