Despite broad Australian Dollar losses earlier in the month, the Pound to Australian Dollar exchange rate has plummeted this week. Its losses began following the Bank of England’s (BoE) disappointing ‘Super Thursday’ news.
It initially seemed as though GBP AUD was on track to lock in further gains this week after it hit 1.7643 – its highest level since September 2016. However, since then the pair has fallen to 1.7379, its lowest level in over a week.
Sterling plummeted during Thursday’s session, despite the Bank of England taking an upbeat tone towards Britain’s long-term economic outlook.
There had been speculation that following the hawkish dissent of Kristin Forbes in March’s policy vote, another policymaker would take a more hawkish stance in May.
However, when the vote to leave UK interest rates frozen was 7-1 with Forbes as the sole dissenter, investors were disappointed.
The bank downgraded its UK growth forecast for 2017 from 2% to 1.9% and implied that most of its forecasts were made under the assumption that the Brexit process would largely go smoothly. Its inflation projection was revised higher to 2.8%.
BoE Governor Mark Carney also issued warnings in his press conference that Britain’s citizens could soon see a spending squeeze due to rising inflation and slowing wage growth.
While the bank appeared optimistic, indicating that UK interest rates could rise sooner than markets expected, it said it may need to raise rates before late-2019 which is still quite a bit later than some investors have hoped.
The lack of short to mid-term hawkishness was highly disappointing to Pound traders and Sterling was sold off as a result.
The main cause of this week’s Pound to Australian Dollar losses was the Bank of England news. However, the pair continued falling on Friday as market demand for the ‘Aussie’ finally began to improve.
Australian data has failed to impress and prices of iron ore, Australia’s most lucrative commodity, have seen persistently poor performance in recent weeks.
After over a month of poor performance, the cheap Australian Dollar could see quite a rebound in the next week or so.
AUD gains could certainly occur if Tuesday’s Reserve Bank of Australia (RBA) meeting minutes are more upbeat than expected, following the cautious statements from the RBA’s most recent meeting.
The Australian Dollar could also be boosted by next week’s key consumer confidence data from Westpac and, of course, Australia’s April employment data. Australia’s mixed job market has been particularly influential for the long-term Australian Dollar outlook in recent months.
However, if these figures fail to impress, the Australian Dollar’s recovery is likely to be limited.
As for the Pound’s outlook, next week will see the publication of Britain’s April inflation stats. Investors are likely to continue hoping that higher-than-expected inflation could put mounting pressure on the Bank of England.
At the time of writing this article, the Pound to Australian Dollar exchange rate trended in the region of 1.7390. The Australian Dollar to Pound exchange rate traded at around 0.5750.
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