Risk Appetite Recovers as Markets Shake off US Inflation Fears, Keeping AUD/GBP Exchange Rate at Opening Levels despite Mixed Domestic Labour Data
Although US inflation data threatens to cause further jitters on the stock markets and knock-on bearishness in the currency markets, risk-appetite has returned and supported the AUD/GBP exchange rate around opening levels.
The Australian Dollar has been able to hold its ground versus Pound Sterling despite a rather mixed set of labour market figures for January.
While the latest employment change figure marginally beat expectations by clocking in at 16,000 compared to forecasts of 15,000, the previous month’s employment growth was revised down to 33,500.
This was enough to take the previous unemployment rate up unexpectedly to 5.6%, although this did ease back to 5.5% in January.
The figures have shown a sharp decline in the number of people in full-time employment, with the total dropping almost -50,000, with part-time employment rising almost 66,000; a disappointing result given that full-time employment is more beneficial from an economic point of view.
While still a solid jobs report – and part of the longest unbroken streak of month-on-month job gains on record – the soft jobs data will help justify the Reserve Bank of Australia’s (RBA) willingness to be patient with regards to monetary tightening.
As Felicity Emmett of ANZ Bank explains;
‘Another rise in employment brings it to a record 16 consecutive monthly gains. The drop in full time jobs and the recent stabilisation of the unemployment rate took some of the gloss off the report, however.’
‘Recent stability in the unemployment rate is consistent with the RBA’s willingness to be patient on policy normalisation.’
Upbeat Bank of England Wage Growth Survey Fails to Push AUD/GBP Exchange Rate below Opening Levels
Pound Sterling has been left largely on soft form today due to an empty data calendar, reacting to strength or weakness in its peers rather than having any intrinsic driving force of its own, which is keeping the AUD/GBP exchange rate around opening levels.
This is despite a new survey released by the Bank of England (BoE) which predicts that pay growth is expected to exceed the rate of inflation this year, meaning that real wages will once again begin to rise.
BoE agents surveyed 360 businesses employing 845,000 people between the end of November and the middle of January and discovered that companies are expecting to increase staff pay 3.1% during 2018, compared to the 2.6% increase seen last year.
With overall inflation currently at 3% and predicted to fall, this means there could be an end in sight for the squeeze on household incomes that is currently unsettling the services sector.
Of course, this does remove some of the pressure upon the Bank of England to raise interest rates in order to combat strong inflation, making the survey findings something of a double-edged sword as far as the markets are concerned.
RBA Governor Lowe Testimony Forecast to Weaken AUD/GBP Exchange Rate if Cautious Outlook on Monetary Policy Remains
The only development today on the Australian or UK economic data calendar is will be a testimony before a Parliamentary committee from Reserve Bank of Australia Governor Philip Lowe, which could weaken the AUD/GBP exchange rate.
The Governor has recently stated that policymakers are unlikely to raise interest rates any time soon and that the RBA won’t start hiking interest rates just because the central banks of other major economies have done so, or look to do so in the near future.
It is unlikely that Lowe’s view will have changed in the few days since the Reserve Bank of Australia announced its latest monetary policy decisions, therefore the Australian Dollar could be set to weaken against the Pound.
Upcoming US industry data could also undermine AUD/GBP, as strong figures would further improve the chances of an interest rate hike from the Federal Reserve next month and could see recovering risk appetite retreat once more.