Australian Dollar to Pound Exchange Rate Struggles to Recover Despite Weaker GBP
The Australian Dollar (AUD) may be one of this week’s most unappealing major currencies, as despite dovish comments from the new Bank of England (BoE) policymaker the Australian Dollar to Pound (AUD/GBP) exchange rate has remained weak.
Last week, a fall in the US Dollar (USD) as well as stronger commodity prices helped AUD/GBP to climb slightly from 0.5604 to 0.5612.
Since markets opened this week though, even mixed USD trade has not been able to help AUD to hold its ground and AUD/GBP has fallen. At the time of writing, AUD/GBP trended nearer the level of 0.5580.
Signs that businesses are being increasingly impacted by the protectionist trade rhetoric and tariff plans from the US have made investors hesitant to buy risky trade-correlated currencies like the Australian Dollar.
However, AUD/GBP did edge away from its weekly lows due to concerns that the newest Bank of England policymaker was more dovish than the outgoing Ian McCafferty.
Australian Dollar (AUD) Exchange Rates Lack Drive as Risk-Aversion Weighs
Trade jitters have worsened further since markets opened this week, keeping pressure on the Australian Dollar.
Investors have had little reason to buy the risky trade-correlated Australian Dollar on domestic news lately, so if global trade concerns persist the ‘Aussie’ could continue to see broad weakness.
Last week, AUD briefly saw a surge in demand as prices of commodities like oil and iron ore strengthened.
As iron ore is Australia’s most lucrative commodity, this helped the ‘Aussie’ to hold its ground.
However, even though iron ore climbed further this week the Australian Dollar has been pressured by news from the US.
A US company, Harley-Davidson, had announced it will move production work out of the US due to escalating trade tariffs between the US and EU. This worsened trade concerns further and made it easy for the Pound to sustain gains.
Pound (GBP) Climbs Versus Weak ‘Aussie’ Despite Bank of England (BoE) Uncertainty
The Australian Dollar to Pound (AUD/GBP) exchange rate was able to recover just slightly from its weekly lows on Tuesday, but broad Australian Dollar weakness kept it well below the week’s opening levels.
Sterling was ultimately able to hold most of Monday’s gains, but it was unable to hold its best levels versus the Australian Dollar due to Bank of England (BoE) policymaker comments that were perceived as dovish on Tuesday.
Jonathan Haskel, set to succeed Ian McCafferty on the BoE Monetary Policy Committee (MPC) in September, expressed concern about Britain’s economic outlook during a speech on Tuesday.
He noted that he expected domestic wage pressure to remain weak, and that there were risks in hiking UK interest rates too quickly. He said:
‘The first risk involved in raising interest rates would be if this is done too quickly, disturbing investment and borrowing plans by more than would have been expected,’
As a result of his comments, Bank of England interest rate hike bets slipped with investors anxious that Haskel was seemingly much more dovish than McCafferty.
Australian Dollar to Pound (AUD/GBP) Forecast: Trade and Central Bank Speculation in Focus
The factors which have driven the Australian Dollar to Pound (AUD/GBP) exchange rate so far this week are likely to continue doing so in the coming days, amid a lack of notable Australian or UK ecostats due until the end of the week.
As a result, AUD/GBP trade is likely to react mostly to trade war developments and comments from Bank of England (BoE) officials on Wednesday and Thursday.
Wednesday’s European session will see BoE Governor Mark Carney hold a speech, with BoE Chief Economist Andy Haldane holding a speech on Thursday.
As Haldane was one of the more hawkish policymakers of last week’s BoE decision, his comments could be influential to Sterling.
Meanwhile, the Australian Dollar will be influenced by the market’s mood regarding trade war concerns. If the chances of a trade war are perceived as lightening for example, the Australian Dollar would strengthen.
Looking ahead, Friday’s Australian private sector credit and home sales as well as UK growth stats could influence AUD/GBP on Friday and set the tone for next week’s trade.