Amid a quieter UK economic calendar and a lack of fresh Brexit developments in recent sessions, the British Pound to Australian Dollar (GBP/AUD) exchange rate looked to rebound slightly as investors bought the cheap Pound. GBP/AUD has been more easily able to hold away from its worst levels as the Australian Dollar was weighed by the latest Central Bank news.
Could GBP/AUD be in for another week of tight trade? GBP/AUD only slipped slightly from the level of 1.7483 to 1.7418, and at the time of writing on Tuesday morning trended near the level of 1.7450. GBP/AUD briefly dipped earlier in the session amid risk-on movement, but the Reserve Bank of Australia’s (RBA) latest meeting minutes have since disappointed.
GBP Advance Limited as ‘No Deal’ Brexit Jitters Persist
Last week’s UK ecostats were decent, but the Pound was ultimately unable to benefit as investors remained concerned that Britain’s economic activity would continue to be limited so long as businesses and consumers remained uncertain about the Brexit process.
However, amid a lack of fresh UK ecostats or political developments this week so far, some investors have opted to buy the Pound back from its cheapest levels in profit-taking.
Sterling’s potential for gains has been highly limited though, due to those persistent Brexit uncertainties.
Market fear over the possibility of a worst case scenario ‘no deal’ Brexit have caused the Pound to slump this month, and its recovery attempts have been weighed heavily by these underlying Brexit fears.
Still, economists generally still believe that some kind of UK-EU deal is more likely than no deal and project that the Pound will recover if such a deal is confirmed. According to Philip Shaw, Chief Economist at Investec:
‘Our baseline case is still that there will be a deal between the UK and the EU and that Prime Minister Theresa May will still be in Number 10 Downing Street at the end of 2018,’
Mikael Olai Milhoj, Senior Analyst at Danske Bank, said:
‘Until we get more clarification, we believe the pound will stay undervalued and volatile,’
AUD Fails to Climb on Sterling Weakness Amid Reserve Bank of Australia (RBA) Minutes
Demand for the Australian Dollar has been decent enough to keep Sterling from rising too far thanks to global market demand for riskier trade-correlated currencies.
However, the Australian Dollar’s own gains were limited too following the publication of the Reserve Bank of Australia’s (RBA) latest meeting minutes report.
The minutes were generally unsurprising, but the bank did ramp up concerns about US trade protectionism and strong US growth which could dampen Australia’s own economic outlook somewhat.
The bank generally took a cautious stance towards monetary policy and indicated that it would still be some time until any changes to monetary policy were needed. According to the report:
‘Since progress on unemployment and inflation was likely to be gradual, [members] agreed there was no strong case for a near-term adjustment in monetary policy,
Rather, members assessed it would be appropriate to hold the cash rate steady and for the bank to be a source of stability and confidence while this progress unfolds.’
As a result of the relatively dovish RBA minutes, the Australian Dollar was unable to benefit from the market’s risk-on mood despite hopes that upcoming US-China trade talks could lighten global trade tensions.
GBP/AUD Forecast: Australian Construction Report Ahead
This week’s UK and Australian data is unlikely to be particularly influential for the Pound to Australian Dollar exchange rate, but there are still a few upcoming datasets worth keeping an eye out for.
Wednesday will see the publication of Australia’s July Westpac leading index, and Q2 Australian construction work figures.
Speeches from Reserve Bank of Australia (RBA) officials could influence the Australian Dollar on Wednesday and Thursday too, especially if they are more hawkish about monetary policy than the RBA minutes had been.
As for UK data, Thursday will see the publication of Britain’s August distributive trades data from the Confederation of British Industry (CBI), followed on Friday by July’s UK finance mortgage approvals.
With the data relatively low influence though, geopolitical developments are much more likely to be influential.
For example, if there are any notable developments in the Brexit process or any changes in US-China trade tensions, the Pound to Australian Dollar (GBP/AUD) exchange rate could see a more notable shift in movement.
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