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Australian Dollar Advances as Ballooning UK Inflation Drags Pound Down

Australian Dollar Exchange Rates

The Australian Dollar has made a clear 0.5% rise against the Pound today, thanks to cautious optimism over future Australian wage growth.

Signs of Gradual Increase in AU Wages Enables AUD/GBP Rate Rise

The Australian Dollar has risen against the Pound and most other peers today, thanks to reports of rising wages in the third quarter.

This data has come from NAB bank, which has put out its monthly business survey.

Although business confidence has dipped from 9 points to 6, the Australian Dollar has still been supported by optimism over wage growth.

Commenting on NAB’s figures was Chief Economist Alan Oster. Mr Oster looked at both sides of the situation;

‘We are paying close attention to what now appears to be a downward trend in business confidence as that could naturally have some implications for decisions around hiring and investment.

We saw some tentative signs of higher wages in the survey, although that does appear to be weighing on the confidence of some firms as well’.

Higher wage growth would increase the chances of a Reserve Bank of Australia (RBA) interest rate hike in the future, having long been a limiting factor on rate hike odds.

Pound Slides against Australian Dollar after Surprise Inflation Growth

The Pound has lost ground to the Australian Dollar today; this is down to a negative trader reaction to higher UK inflation.

During October, UK inflation has reportedly risen from 3% to 3.1%, against expectations.

The Pound saw a brief advance on the news, but has since dropped back due to growing concerns about the wage squeeze hitting consumers.

Summarising the problems of this economic condition, BlackRock Portfolio Manager Ben Edwards has said;

‘UK households may have to continue to endure higher costs in some segments over Christmas particularly as food retailers continue to pass on higher producer prices and airfares take their normal seasonal trip north’.

This sets the UK economy up for trouble in the coming year, assuming that GDP and retail activity readings decline in reflection of tougher conditions.

Further AUD/GBP Gains Possible if UK Earnings Show Slowdown

Australia’s next notable data will be a Westpac consumer confidence reading for December, which is tipped to show a -1.7% decline on the month.

While this outcome could lower confidence in the Australian Dollar, there is still a chance for an AUD/GBP rise if UK data prints poorly.

The next UK data to watch out for will be Wednesday’s jobs and earnings figures.

Average earnings (including wages) are expected to have risen in October, while an unemployment rate drop is also on the cards.

If these estimates do prove accurate, the Pound could see a clear advance against the Australian Dollar.

Higher wage growth would lessen the damage from the ongoing wage squeeze, while falling unemployment would put more pressure on employers to consider salary expansions.

Recent Interbank AUD GBP Exchange Rates

At the time of writing, the Australian Dollar to Pound (AUD GBP) exchange rate was trading at 0.5662 and the Pound to Australian Dollar (GBP AUD) exchange rate was trading at 1.7654.