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Australian Dollar Pound Sterling (AUD/GBP) Exchange Rate Slips on Mixed Australian Labour Market Figures

Australian Dollar Exchange Rates

Aussie Private Sector Wage Growth Disappoints – AUD Exchange Rates Tumble

The Australian Dollar Pound Sterling (AUD/GBP) exchange rate slipped on Wednesday as markets digested a mixed run of domestic data releases from Australia.

According to the Australian Bureau of Statistics, wage growth in Australia surprisingly proved stronger than expected during the final three months of 2017 by printing at 2.1%.

The devil was very much in the details, however, with private sector wage growth only rising by 1.9%, compared to the public sector reading of 2.4%.

This means that private sector wages barely managed to keep up with inflation levels, a difference that markets pessimistically noted.

‘Private sector wages have barely kept pace with inflation despite improved business conditions and strong growth in corporate earnings (…) In the current environment, low wage growth continues to point towards weak inflation and makes it difficult for the Reserve Bank to justify higher interest rates’.

Whilst the reading was better-than-expected, the possibility that the Reserve Bank of Australia (RBA) will move to adjust their cautious monetary policy plans for 2018 has drastically reduced.

In other rather poor news Australia’s construction work reading for the 4th quarter of 2017 plummeted by -19.4%, missing the forecast of -10.0% and the previous reading of 16.6%.

This was largely driven by inflated outcomes in Q2 and Q3, however, with this figure largely playing second-fiddle to the wage growth readings.

Pound (GBP) Exchange Rates Limited by Unexpected Rise in UK Unemployment

Sterling was slightly limited on Wednesday, (despite its rise against the ‘Aussie’ Dollar) as markets reacted to an unexpected rise in the UK’s unemployment reading.

According to the Office for National Statistics (ONS) the UK’s unemployment rate increased to 4.4% in the three months to December, above the previous period’s 42-year low of 4.3% and confounding analysts that had expected it to remain steady.

This marked the first increase in the number of unemployed in the UK in over 2 years, news that limited the upward potential of the Pound.

There was a silver lining, however, with the number of people in work rising by 88,000, whilst the number of people defined as ‘economically inactive’ dropped by 109,000.

In other news the UK’s highly anticipated wage growth figures printed above expectations, with the weekly earnings (excluding bonuses) reading rising from 2.3% to 2.5%, beating the forecast of 2.4%.

This put markets in a slightly awkward position; as the rise in wages boded positively for the Bank of England (BoE), but the unemployment figure boded slightly negatively.

Chris Williamson, chief business economist at IHS Markit, examined this contrast, stating:

‘While an upturn in pay growth opens the door further for interest rates to rise again, possibly as soon as May, signs of the labour market losing steam add to worries that the economy is struggling under heightened uncertainty’.

AUD/GBP Exchange Rate Forecast: BoE Carney Raises 3-year Rate Hike Prospects from 2 to 3

The Australian Dollar Pound Sterling (AUD/GBP) exchange rate could see even more pressure in the near-term as markets respond to recent comments from BoE Governor Mark Carney and the bank’s Chief Economist Andy Haldane.

Speaking in London, Carney asserted that he expects the bank to move for 3 rate hikes over the next 3 years, rather than the previous plan of 2.

Beyond this, Mr Haldane also proved optimistic about the UK’s economy in his recent annual report to Parliament, stating:

‘I think there is the potential for greater than expected momentum in both global and UK growth and inflation’.

Markets will also be keeping a keen eye on tomorrow’s UK growth figures, with a better-than-expected reading liable to push the central bank even further towards the prospect of a May rate hike.