After losing a penny over the week, the Australian Dollar Pound exchange rate flatlined around 0.60 on Friday. AUD GBP failed to recover far from its lows despite Sterling weakness, as investors held away from the risky ‘Aussie’.
Australian Dollar (AUD) Suffers from Low Risk-Demand and RBA Bets
Demand for the Australian Dollar has been poor this week. Amid the first full week of the Donald Trump’s US Presidency, investors looked to generally avoid making risky investments and as a result the Australian Dollar performed poorly.
AUD was also weaker than some of its risky peers due to a lack of supportive factors throughout the week. While prices of commodities like iron ore remained sturdy, Australian inflation disappointed according to this week’s data.
Consumer price growth slowed from 0.7% to 0.5% quarter-on-quarter in Q4 2016 and yearly inflation only advanced to 1.5% despite markets hoping for an increase to 1.6%.
Due to this underwhelming inflation result, investors became concerned that the Reserve Bank of Australia (RBA) could return to an easing bias in the coming months, rather than remaining neutral or even going hawkish as some had hoped.
Pound (GBP) Fails to Benefit from Better-than-Expected GDP Results
Sterling has been mixed this week. The Pound’s underlying movements improved due to increasingly strong hopes that the UK government and Parliament would work towards getting Britain good trade deals following the Brexit, but economic concerns and Brexit uncertainty still weighed.
While the UK government is now fully expected to help Parliament vote on Article 50 by supplying materials such as a Brexit ‘white paper’, the process is still covered by uncertainty which is holding GBP traders back.
The recent release of UK Gross Domestic Product (GDP) results also painted a mixed picture. British growth results for Q4 2016 impressed by beating expectations, but also concerned as they indicated all UK growth was being propped up by the nation’s services sector.
With GBP’s plummet in value expected to hit the high street soon, services like retail could see a drop in activity that could cause growth to slow substantially. This concern caused Sterling to fall towards the end of the week.
Australian Dollar Pound Exchange Rate Forecast: Will May-Trump Meeting Support Pound Higher?
Where will the Australian Dollar Pound exchange rate go from here? As the first week of the US Trump Presidency comes to an end, UK Prime Minister Theresa May is expected to be the first world leader to meet with him.
While May is being urged by British MPs to focus on convincing Trump about the benefits of unity and the reality of climate change, markets are hoping there will also be talks of potential post-Brexit UK-US trade deals.
Trump has indicated in the past that he believes the UK and US should continue to have a special relationship, causing markets to hope for stronger trade ties between the two nations.
As a result, AUD GBP is likely to end the week close to its lowest levels as markets firm on the Pound ahead of this key meeting.
Next week’s Australian economic calendar includes NAB’s December business confidence results, as well as AiG’s January PMIs.
Britain’s economic calendar will also be relatively quiet for most of the week, but the Bank of England (BoE) will hold its first 2017 policy meeting on Thursday.
AUD GBP Interbank Rate
The Australian Dollar Pound exchange rate trended in the region of 0.59, while the Pound Australian Dollar exchange rate traded at around 1.66.