Poor Australian Inflation and Permits Figures Cause AUD/GBP Exchange Rate Drop
The AUD/GBP exchange rate has fallen to its worst level since early December today, due to a string of negative AU economic data.
Inflation rate figures for the fourth quarter have shown smaller-than-expected growth for the year-on-year reading, as well as an unexpected reprint on the quarter.
A lack of consistent inflation growth is disappointing for AUD traders, as it means reduced odds of a Reserve Bank of Australia (RBA) interest rate hike.
Consistent pressure from high inflation is a driving force behind higher interest rates, which make saving more attractive than spending.
The Australian Dollar has also been devalued by the latest building permit results for December, which have been similarly disappointing.
The quantity of granted permits fell by -20.2% in December 2017, more than expected and from a previous growth figure of 11.7%.
Less permits being granted means less construction in the country, which in turn means increased pressure on the housing market.
US Dollar Advance Weighs on AUD/GBP Exchange Rate
Another factor dragging down the Australian Dollar to Pound rate has been the US Dollar, which has strengthened after a recent Federal Reserve meeting.
The Fed’s first policy meeting of 2018 indicated that the US central bank is preparing for higher inflation this year, which could mean at least 3 interest rates hikes.
A strong US Dollar reduces demand for currencies that are considered more high-risk, in this case including the Australian Dollar.
Pound to Australian Dollar Exchange Rate Surges on Hopes for Early UK Interest Rate Hikes
The Pound has made significant gains against the Australian Dollar today, in addition to trading higher against the US Dollar and the South African Rand.
This strong performance shows that Pound demand is high; this has been caused by increased optimism about UK interest rate hikes taking place in 2018.
UBS Bank has forecast that the Bank of England (BoE) could increase UK interest rates as early as May this year, stating;
‘While we are now revising our forecast to incorporate another rate hike we did not previously anticipate, we continue to believe the BoE Monetary Policy Committee (MPC) took a risk with the UK economy by raising rates in November, and would be compounding this by doing so again in May’.
The bank believes that the odds of an early rate hike will increase if the UK is able to secure a transitional deal with the EU in the coming months.
AUD/GBP Exchange Rate Forecast: Australian Dollar Recovery possible on Services Stats
The next source of Australian Dollar movement will be a services sector reading out on Monday, which is predicted to show growing activity.
Services covers areas like tourism and retail sales, so a rising reading may be enough to trigger an Australian Dollar to Pound advance.
In a similar situation, the UK services PMI activity measure is also out on Monday, although this variant is predicted to show slowing activity.
The services sector is the largest sole contributor to UK economic growth, so a decline could panic traders and cause a GBP/AUD decline.