The Pound Australian Dollar (GBP AUD) exchange rate could prove increasingly volatile this week depending on progress made with Brexit, the UK’s GDP figures and Wednesday’s Australian inflation release.
Brexit Negotiations Demonstrate Progress – GBP AUD Outlook Mixed
The outlook for the Pound grew increasingly positive towards the end of last week, with various EU leaders asserting that significant progress in negotiations had been made and even that Brexit trade talks can begin in December.
Council President Donald Tusk stated:
‘After Prime Minister May’s intervention last night and our discussion about Brexit this morning, my impression is that the reports of the deadlock between the EU and the UK have been exaggerated and while progress is not sufficient it doesn’t mean there’s no progress at all’.
It should be noted, however, that despite the apparent progress, the European Council is still insisting that insufficient advancement has been made in regards to the divorce bill – the impasse that has been preventing both sides from moving onto the next stage of negotiations.
Although the Pound has been bolstered by last week’s ‘progress’, markets will likely remain hesitant until the deadlock is legitimately erased.
Australian Dollar (AUD) to Respond to Australian Inflation and its Potential Influence on the RBA
Australian Dollar (AUD) exchange rates have been left fluctuating after last week’s employment figures demonstrated notable strength.
Markets will be keeping a keen eye on Wednesday’s Australian inflation print, however, which is currently forecast to rise 2.0% year-on-year, up from 1.9% in the previous period, and with 0.8% jump forecast quarter-on-quarter.
How much of an effect this release will have is debatable, with economists like BK Asset Management’s Kathy Lien suggesting that it could be minimal:
‘Australian inflation data is scheduled for release and, while important, we’re not sure how much impact it will have on AUD as the Reserve Bank of Australia (RBA) maintains a firmly neutral policy stance’.
It should be noted, however, that a 2% inflation print would mean that the bank is officially within its target range of 2-3%. If this continues then the Reserve Bank of Australia (RBA) might be inclined to move away from its current stance of ‘cautious optimism’ towards a more hawkish regard, an eventuality that would drive the Australian Dollar higher.
GBP Exchange Rates Forecast to Respond to UK GDP and Bank of England Rate Hike Prospects
Pound Sterling (GBP) exchange rate movement could occur later in the week as Wednesday will also feature the release of the UK’s Q3 preliminary gross domestic product (GDP) estimates, with a year-on-year forecast of 1.5% and a quarter-on-quarter forecast of 0.3%.
Markets are nonetheless worried that UK GDP will print below forecasts given that recent services and retail sales data came in lower than expected.
If this occurs then the possibility of a rate hike in November from the Bank of England (BoE) will further diminish, with some members of the Monetary Policy Committee (MPC) already shifting towards caution in the wake of recent poor data.
This prospect has left Sterling bearish, with investors choosing to be cautious before the release of the UK’s GDP estimates.
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