Australian Dollar to Pound (AUD/GBP) Exchange Rate Struggles to Hold on Persistent ‘Trade War’ Concerns
Risk-sentiment has been in flux this week and this has caused the Australian Dollar to Pound (AUD/GBP) exchange rate to see highly mixed movement since Monday.
AUD/GBP opened this week at the level of 0.5625 and has largely fluctuated between the level of 0.5591 and 0.5637 since then. During Thursday’s European session AUD/GBP trended just below the week’s opening levels.
This week’s biggest news for Australian Dollar (AUD) investors has been the concerning protectionist stance on global trade taken by the US Presidential administration. Economists are anxious that these actions could spark a global ‘trade war’.
The US President announced intentions to introduce strict tariffs on US imports of steel and aluminium. As much of Australia’s growth comes from exports, investors have been hesitant to buy the Australian Dollar.
Market demand for currencies like the risky ‘Aussie’ was briefly boosted in the middle of the week by hopes that the US Presidency’s trade stance could soften or be backpedaled, but instead concerns have persisted.
As markets have perceived risky trade-correlated currencies like the Australian Dollar as unappealing, the currency has not been able to hold gains against a weaker Pound (GBP).
Pound (GBP) Exchange Rates Pressured by Brexit Uncertainties
Disagreements between the UK and EU on what kind of post-Brexit trade agreement is possible between the two have made the Pound outlook more uncertain again this week.
Sterling has fluctuated as EU negotiators appeared to strictly reject the UK government’s plans to aim for a more bespoke trade deal with the EU post-Brexit. The UK government has remained optimistic despite the EU’s stance.
UK Chancellor Philip Hammond argued that the stricter stance taken by European Council President Donald Tusk towards negotiations was unsurprising and understandable, but Hammond expressed confidence that a unique deal could still be reached between the UK and EU.
UK officials have also shown that they intend to agree to a post-Brexit transition period with the EU, during an EU summit later in March.
The mix of optimism for the Brexit outlook to improve as well as concerns that negotiations could hit further obstacles or fall through completely has left Pound movement mixed too.
Sterling has been unable to capitalise on Australian Dollar weakness but has also held its ground above its weekly lows.
Australian Dollar (AUD) Outlook Little Changed by Recent Australian Ecostats
Some notable Australian datasets were published over the last week, but amid broad concerns about the US stance on trade and the possibility of a US-sparked ‘trade war’, investors have largely brushed over these results.
Wednesday saw the publication of Australia’s Q4 Gross Domestic Product (GDP) results. Both figures disappointed, falling short of expectations.
Quarter-on-quarter Australian growth was forecast to come in at 0.6%, but instead slowed from 0.7% to 0.4%, though the previous figure was revised higher from 0.6%.
Similarly, the yearly figure slowed to 2.4% rather than the forecast 2.5%, but the previous figure was revised higher from 2.8% to 2.9%.
Thursday’s Australian trade balance report was more optimistic, beating the forecast A$0.3b and rising to A$1.055b thanks to a jump in exports in January. This did, however, illustrate the importance of exports in Australia.
Australian Dollar to Pound (AUD/GBP) Forecast: US Trade Developments Remain in Focus
As recent ecostats have had little notable impact on the Australian Dollar to Pound (AUD/GBP) exchange rate, the pair is more likely to continue reacting to political developments in the coming sessions.
In particular, the Australian Dollar will be driven by any news regarding the US stance on trade and the perceived potential of US protectionism sparking a ‘trade war’.
If the US Presidential administration continues to ramp up protectionist rhetoric and show intentions to follow through on stricter trade tariffs, market demand for risky trade-correlated currencies like the Australian Dollar could remain weak.
On the other hand, if the US is seen as backing away from its stricter stance, markets may be less hesitant to buy risky currencies again.
As for Sterling, developments on UK-EU Brexit negotiations will of course continue to drive currency movement. Friday’s UK trade and production data could cause Pound movement if it surprises.
Trade and Brexit news could remain the biggest influence of AUD/GBP movement next week too, though Australian confidence surveys and Britain’s Spring statement may also prove influential.