GBP/AUD Exchange Rate Rangebound Risk Sentiment Sinks as US-China on Collision Course
The Pound Australian Dollar (GBP/AUD) exchange rate held steady today, with the pairing currently trading around AU$ 1.889 as the risk-sensitive ‘Aussie’ continues to benefit from risk-appetite following last week’s signing of the US-China ‘phase one’ trade deal.
However, as Washington and Beijing look set for another collision course, Australian markets are remaining cautious as tensions between the world’s two largest economies will have a detrimental effect on Australia’s trade-reliant economy.
Chad Brown, the Senior Fellow at the Peterson Institute for International Economics, was downbeat in his analysis:
‘That’s a giant hole in the Phase One deal, and there’s no way to get around it, we’re no closer today to resolving any of those fundamental frictions than we were before the trade war started’.
Meanwhile, AUD traders are paying close attention to the Reserve Bank of Australia (RBA) this week, with any further hints of a policy stimulus weakening the AUD/GBP exchange rate on heightened concerns for Australia’s economy.
Joseph Capurso, a Strategist at the Commonwealth Bank of Australia, said:
‘We expect the RBA will deliver more policy stimulus with a 25bp rate cut on 4 February. Australian futures are pricing a 55% chance of a cut’.
GBP/AUD Exchange Rate Steady, BoE Rate Cut Fears Haunt UK Markets
The Pound (GBP) has been plagued by similar concerns over the Bank of England (BoE), after last week saw two members of Monetary Policy Committee, Silvana Tenreyro and Gertjan Vlieghe, drop hints that they would back an interest rate cut as early as this month.
Odds of a rate cut from the central bank have now knocked up to around 70%, leaving the GBP/AUD exchange rate weak on heightened concerns over the UK economy going into 2020.
Victoria Clarke, an economist at Investec, commented:
‘In recent days there has been heightened focus on the possibility that the Bank of England might opt to cut the 0.75% Bank rate over the coming months and perhaps even as soon as January 30.’
Some of the Pound’s losses were however held back by today’s release of the Rightmove House Price Index for January, which beat forecasts and rose from -0.9% to a record-beating 2.3% month-on-month, while the year-on-year rose to 2.7%.
Miles Shipside, a director at Rightmove, said that December’s general election had provided a ‘window of stability’ for movers, adding:
‘The housing market dislikes uncertainty, and the unsettled political outlook over the last three and a half years since the EU referendum caused some potential home movers to hesitate. There now seems to be a release of this pent-up demand, which suggests we are in store for an active spring market.’
GBP/AUD Outlook: Could Further US-China Trade Tensions Weaken the ‘Aussie’?
Sterling traders will be awaiting tomorrow’s ILO unemployment rate report for November, which is expected to hold at 3.8%. Any downturn in employment, however, would weaken the GBP/EUR exchange rate as the BoE’s rate cut odds would likely increase.
Tomorrow will also see the publication of the UK average earnings figure for November. Any signs of improvement could provide some uplift for the Pound.
Australian Dollar investors will be paying close attention to tomorrow’s release of January’s Australian Westpac Consumer Confidence report for January, which is expected to rise from -1.9% to -0.8%. However, this is not expected to boost the AUD/GBP exchange rate.
US-China trade developments will continue to drive the GBP/AUD exchange rate this week, with any signs of deterioration following last week’s ‘phase one’ trade deal weakening the risk-sensitive ‘Aussie’.
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