GBP to AUD Exchange Rate Gains Limited Ahead of Key Australian Inflation Report

July 24, 2018 – Written by Toni Johnson

Investors were hesitant to keep buying the British Pound to Australian Dollar (GBP/AUD) throughout Tuesday’s European session, despite some decent UK ecostats from the Confederation of British Industry (CBI), as markets highly anticipated Wednesday’s key Australian Consumer Price Index (CPI) inflation results.

Despite broad market concerns about the US-China trade war, GBP/AUD saw a notable fall last week from the level of 1.7823 to 1.7683. Since markets opened on Monday, GBP/AUD has climbed again slightly and touched on a high of 1.7785 on Tuesday morning. However, the pair has since slipped again and currently trends near the level of 1.7726.

GBP Fails to Find Additional Support in Latest CBI Reports

This week’s UK economic calendar is relatively quiet, and while most of the noteworthy data was published on Tuesday it had little impact on Pound exchange rates.

The Confederation of British Industry’s (CBI) Q3 business optimism index and July industrial trends orders reports were published, with mixed results.

Business optimism did improve slightly, but only from -4 to -3. Meanwhile, the industrial trends orders figure beat the economist consensus of 9 and only slipped from 13 to 11.

According to the report though, factory activity continued to be held back by Brexit uncertainties. The report revealed that some businesses were cutting back on investment plans amid the Brexit process and the US-China trade war.

Tom Crotty, Chair of the CBI Manufacturing Council, said:

‘It’s great to see the manufacturing sector firing on all cylinders, with production revving up again after the slowdown earlier this year.

But rising trade tensions and ongoing uncertainty over our future trade and customs arrangements are clearly taking their toll on manufacturers’ confidence and investment.’

Market Brexit jitters are currently the worst they have been in months and have caused the Pound to hit major lows against most currency rivals over the last week.

Economists previously speculated that businesses would feel more confident about the Brexit process if the UK government clarified its aims for the process.

However, as UK Prime Minister Theresa May’s Brexit plan has faced obstacles within her own Conservative Party, markets are becoming increasingly anxious that a worst-case scenario ‘no deal’ Brexit could be possible.

If the UK government is unable to pass any potential UK-EU Brexit deal into law, businesses and the economy may need to prepare for a Brexit where Britain has lost most of its trade connections to the EU.

AUD Lacks Drive as Investors Anticipate Key Australian Data

Various global factors, largely revolving around US trade protectionism and the US-China trade war, have left the Australian Dollar unappealing this week and this has made it easier for the Pound to Australian Dollar exchange rate to recover from last week’s lows.

As the Chinese Yuan (CNY) has plunged and Chinese markets have weakened, investors fear a currency war may be possible.

China is Australia’s biggest trade partner, so concerns about how the trade war may impact China’s economy has caused significant concern about how Australia’s economy could be affected too.

Still, Pound weakness and market anticipation for upcoming data has limited the Australian Dollar’s weakness against the Pound.

While the Australian Dollar hasn’t seen much in the way of domestic support since last week’s Australian employment report, markets are hesitant to move much on the Australian Dollar ahead of Wednesday’s key Australian inflation report.

GBP/AUD Forecast: Australian Inflation Results in Focus

This week’s most influential dataset for Pound to Australian Dollar exchange rate investors will be published during Wednesday’s Asian session, in the form of Australia’s Q2 Consumer Price Index (CPI) inflation results.

Australian inflation is forecast to have improved from 0.4% to 0.5% quarter-on-quarter, and from 1.9% to 2.2% year-on-year.

If Australian inflation improves as expected or rises even further, the Australian Dollar is likely to see slightly stronger demand as investors speculate that the Reserve Bank of Australia (RBA) may be more likely to take a more hawkish stance in the foreseeable future.

Of course, the opposite is also true. If Australian inflation is lower than expected, RBA interest rate hike bets may fall further and the Pound is likely to more easily recover against the ‘Aussie’.

UK distributive trades data on Wednesday and Australian export data on Thursday also has the potential to influence the Pound to Australian Dollar exchange rate in the coming sessions.

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TAGS: Pound Australian Dollar Forecasts