Australian Dollar Pound (AUD/GBP) Exchange Rate Capitalises on Weaker UK Household Finance Index
With global stock markets relatively quiet at the start of the week, thanks to a US bank holiday, the Australian Dollar to Pound (AUD/GBP) exchange rate was able to make some modest gains.
This was largely due to another negative turn for the Pound (GBP), which came under pressure in the wake of IHS Markit’s Household Finance Index.
The survey highlighted the rather negative state of UK household finances, indicating that consumer spending is likely to remain muted in the months ahead.
As Tim Moore, Associate Director at IHS Markit, noted:
‘The latest survey adds to evidence that UK households have seen an erosion of their financial wellbeing so far this year, with stubbornly high inflation the main factor placing pressure on consumer budgets. In response to squeezed incomes and concerns about the financial outlook, households appear to have reined in spending, particularly on big-ticket items.’
This weakness potentially undermines the prospect of an imminent Bank of England (BoE) interest rate hike, given policymakers’ concern with the ongoing wage squeeze.
RBA Minutes Forecast to Weigh on Australian Dollar Exchange Rates
Some volatility is likely in store for the AUD/GBP exchange rate this morning with the release of the Reserve Bank of Australia’s (RBA) February meeting minutes.
If the minutes reflect recent comments from Governor Philip Lowe, indicating that interest rates will remain on hold in the near term, this could dent the Australian Dollar (AUD).
So long as the RBA looks set to maintain a neutral policy bias the upside potential of AUD exchange rates is likely to remain rather limited.
On the other hand, should the minutes indicate a greater degree of confidence in the outlook of the Australian economy this could help to boost the Australian Dollar once again.
The AUD/GBP exchange rate is also vulnerable to developments in the wider global market over the coming days, particularly in response to communication from the Federal Reserve.
High odds of an imminent Fed interest rate hike should keep AUD exchange rates under some degree of pressure, even if market risk appetite picks up.
AUD/GBP Exchange Rate Volatility Forecast on UK Wage Data
Confidence in the Pound could improve materially if Wednesday’s raft of UK labour market data proves encouraging, returning the AUD/GBP exchange rate to a weaker footing.
Particular focus will fall on the latest average weekly earnings figures, which are forecast to hold steady at 2.4% on the year in the three months to December.
Any signs that wage growth is picking up, however, could see the Pound surge higher across the board.
As the Bank of England (BoE) has expressed some concerns over the lacklustre nature of wage growth, given the persistently high levels of UK inflation, a stronger showing here could boost the odds of an imminent interest rate hike.
On the other hand, any disappointment at this juncture could boost the AUD/GBP exchange rate, giving BoE policymakers greater cause for caution.