Australian Dollar to Pound Exchange Rate Rebounds Slightly from Fresh Weekly Lows
Due to persistent market concerns about the possibility of a ‘trade war’, the Australian Dollar to Pound (AUD/GBP) exchange rate was only able to recover slightly from the low it hit on Wednesday.
Since opening this week at the level of 0.5447, AUD/GBP has seen wide fluctuations due to market trade and commodity uncertainties impacting the Australian Dollar (AUD).
AUD/GBP hit a low of 0.5404 on Wednesday, the pair’s lowest level since the 2016 Brexit vote. AUD/GBP recovered slightly during the European session but remained below the week’s opening levels.
The Australian Dollar’s recovery was limited by reports that the US President had spoken with France’s President and Germany’s Chancellor on the issue of taking trade action against China.
This was perceived as a contrast with news earlier in the week that the US was taking part in behind the scenes trade talks with China, and market concerns about the possibility of a ‘trade war’ worsened again.
As the Australian Dollar is a risky trade-correlated currency, it has been highly unappealing amid the risk-off movement caused by ‘trade war’ jitters.
Domestic News Fails to Support Australian Dollar (AUD) Exchange Rates
Australian Dollar investors have found little other reason to buy the risky currency this week either, as Australian data and commodity news has not been entirely impressive either.
Tuesday saw the publication of Australia’s February new home sales results from HIA, which improved from -2.1% but still contracted at -0.7%.
Prices of iron ore, Australia’s most lucrative commodity, have also remained weak this week following plunges throughout March. This has kept further pressure on AUD.
Pound (GBP) Exchange Rates Avoid Losses on Hopes for Irish Border Solution
Despite the Pound’s (GBP) end-of-quarter fixing selloff on Tuesday, the British currency was able to keep the pressure on the Australian Dollar and AUD/GBP has been unable to hold above the week’s opening levels as a result.
Sterling saw a small boost of fresh support on Wednesday, following reports that the UK government was preparing a new proposal on how to handle the issue of the Irish border.
The Irish border has been among the most contentious issues of Brexit negotiations so far, so news that the UK government was getting closer to a solution bolstered ‘soft Brexit’ hopes and left the Pound more appealing.
Northern Ireland would be leaving the EU with Britain following Brexit, but the nation wishes to maintain a soft border with both the Republic of Ireland (an EU nation) and the rest of the UK.
Disagreements on how to resolve this issue have been a source of major deadlock in Brexit talks and have kept pressure on Sterling in the past.
Australian Dollar to Pound (AUD/GBP) Forecast: UK Growth Results in Focus
While the Australian Dollar will likely continue to be influenced by developments regarding US stances on trade and the possibility of a US-sparked ‘trade war’ for the remainder of the week, Sterling is likely to be driven by key UK data.
Thursday will see the publication of most of this week’s influential UK datasets, including UK Gross Domestic Product (GDP) results and business investment figures from Q4 2017.
UK growth is forecast to have slowed from 0.5% to 0.4% quarter-on-quarter, and from 1.8% to 1.4% year-on-year.
If Britain’s growth rate comes in even lower than expected, it could weaken Bank of England (BoE) interest rate hike bets as well as Sterling trade.
On the other hand, strong UK data may help the Pound hold its ground – though bets of a May rate hike from the BoE are already largely priced in.
If Thursday’s data has little impact on the AUD/GBP exchange rate, investors will be looking ahead to next week’s key Reserve Bank of Australia (RBA) policy decision.