Hopes for Post-Brexit UK-EU Trade Weakens Australian Dollar to Pound Exchange Rate
Despite briefly advancing during Tuesday’s Asian session, the Australian Dollar to Pound (AUD/GBP) tumbled back to near the week’s opening levels during the European session thanks to the latest Brexit news.
After opening this week at the level of 0.5647, AUD/GBP edged higher on Monday before jumping to a high of 0.5676 on Tuesday.
However, the pair plunged again during Tuesday’s European session, briefly touching a low of 0.5632 before trending closer to the week’s opening level again.
Sterling (GBP) demand rose on Tuesday as investors digested a report claiming that the European Parliament was preparing to call for Britain to have privileged access to the EU single market following the Brexit process.
The European Parliament reportedly asked for more flexibility in Brexit negotiations and is preparing a resolution asking for an ‘association agreement’ for post-Brexit UK-EU trade relations.
This was a markedly different stance to that of EU chief negotiator Michel Barnier.
In response to the report, investors became more optimistic that influential parts of the EU also wanted to avoid a ‘hard Brexit’, causing hard Brexit concerns to lighten and the Pound to strengthen.
Australian Dollar (AUD) Outlook Little Changed by Reserve Bank of Australia Minutes
Tuesday’s Asian session saw the publication of the Reserve Bank of Australia’s (RBA) latest meeting minutes, but the report had little impact on Australian Dollar (AUD) exchange rates.
As was widely expected, the bank took an optimistic but cautious tone on Australia’s economy, remaining concerned about domestic inflation and wage growth.
An increasingly competitive retail sector in Australia is expected to keep domestic inflation lower for an extended period of time, which the bank expects limits the chances of tighter monetary policy being necessary soon.
According to JP Morgan chief economist Sally Auld;
‘While the RBA must be taking some comfort in signs of recent wage and inflation pressure in the US, it seems fair to posit that policy will be firmly on hold until the bank has greater confidence on the expected path of key labour market variables in Australia.’
With the bank once again expressing concern over wages, investors are now even more hotly anticipating Wednesday’s Australian wage price results.
Pound (GBP) Exchange Rates Limited by Slowing UK Factory Activity
Despite long-term Brexit hopes improving and investors becoming more confident in a ‘soft Brexit’, markets are still uncertain about the short-term outlook for Britain’s economy and the Pound.
Tuesday saw the publication of the Confederation of British Industry’s (CBI) industrial trends orders results for February, which slowed from 14 to 10 – more or less in line with economist expectations.
However, it was also the worst factory order growth in four months, and the CBI is concerned that Brexit uncertainties could continue to weigh on the sector’s activity in the coming months.
Australian Dollar to Pound (AUD/GBP) Forecast: Wage Growth Results in Focus
Wednesday is likely to be an influential session for Australian Dollar to Pound (AUD/GBP) exchange rate traders, as Australian wage and UK wage results will both be published.
As the Reserve Bank of Australia (RBA) has focused on wage data a lot lately, Australia’s Q4 wage price index could be especially influential if it surprises markets.
Analysts expect Australian wages to have generally remained unchanged in Q4, with the quarter-on-quarter figure forecast to remain at 0.5% and the year-on-year print forecast to stay at 2.0%.
If it beats expectations, it could boost market confidence that wage price pressures are improving thanks to the strength of Australia’s labour market, which could boost RBA interest rate hike bets and the ‘Aussie’ itself.
Britain’s December job market results, including wage growth, will be published during Wednesday’s European session.
UK wages are forecast to remain at 2.5% including bonuses – so if these beat expectations it could make investors more confident that the UK pay squeeze could end sooner than expected and boost the Pound.
Of course, any developments on Brexit will likely have a strong influence on AUD/GBP exchange rate movement too.