RBA Optimism about Wage Stability Pushes AUD/GBP Exchange Rate Higher
This sizable appreciation is mainly down to Sterling weakness, although there has still been some support from the Australian side.
The latest Australian domestic data has concerned wage growth in the first quarter, which has printed at 0.5% on the quarter and 2.1% on the year.
These results were fairly so-so, but the fact that they have showed continued growth has at least been a positive aspect of the data.
More solid support has come from a Reserve Bank of Australia (RBA) report which has stated that there is no real negative impact from increasing the minimum wage.
This allays concerns that if employers are required to pay more, they could reduce staff numbers or reduce their hours.
AUD/GBP Gains Limited as Steady Wages Lower Chance of Forecast-Matching Recovery
While the Australian Dollar (AUD) has made clear gains against the Pound (GBP) today, the pairing’s has still had an upper limit.
This is down to concerns that if wage growth levels continue to follow the current unimpressive trend, then the 2018 Budget forecasts may not be met.
The official line from the government is that:
‘While wage growth remains subdued, it is expected to strengthen as growth in the economy picks up to an above-potential pace and spare capacity in the labour market is absorbed.’
Additional scepticism of this forecast has come from RBA Deputy Governor Guy Debelle, who has warned that the pace of wage growth could stay glacial for a prolonged period.
Summarising why this is important, BIS Oxford Economics economist Sarah Hunger said:
‘The RBA have repeatedly signalled that they need to see wage and price inflation well-established before they raise [interest] rates.’
Pound to Australian Dollar Exchange Rate (GBP/AUD) Worsens after Criticism from BoE Deputy
Despite concerns about wage growth in Australia, the Australian Dollar to Pound (AUD/GBP) exchange rate has still risen due to Sterling weakness.
The Pound has been dragged down following remarks from Bank of England (BoE) Deputy Governor Ben Broadbent, who has talked down the UK economy.
In a statement that attracted much criticism, Mr Broadbent described the UK economy as ‘menopausal’.
Most of his concerns were aimed at poor UK productivity, a longstanding economic problem that has yet to be solved.
Australian Dollar to Pound Exchange Rate Forecast: Are Further AUD/GBP Gains ahead on AU Jobs Data?
The Australian Dollar (AUD) could rise further against the Pound (GBP) in the near-future, when AU jobs market data for April is released.
This is forecast to show more people in employment, but no change to the unemployment rate.
If more people have found work than first predicted and the unemployment rate falls below 5.5%, the Australian Dollar could rise sharply against the Pound.
On the UK side, Bank of England (BoE) policymaker Andy Haldane will be speaking today and might initiate a GBP/AUD exchange rate recovery if he backs a 2018 interest rate hike.