The Pound to Australian Dollar exchange rate has seen a consistently strong performance in recent weeks due to extensive ‘Aussie’ weakness.
GBP AUD gained around a cent in value this week, climbing from 1.74 and briefly hitting a high of 1.76 on Wednesday. This was the pair’s best level since September 2016.
Sterling has been highly appealing in recent weeks due to a number of domestic and economic and political factors. Britain’s April PMIs all beat expectations and markets are anticipating that the upcoming UK general election could lead to smoother Brexit negotiations.
This week, the Pound has benefitted from anticipation for this week’s Bank of England (BoE) policy meeting. The bank is not expected to make any changes to monetary policy but investors will be paying close attention to the tone taken by officials.
As recent UK data has been consistently strong, analysts and investors have speculated that the bank could be pressured into taking a more hawkish stance on monetary policy, or at least tightening policy from its current record-lows.
As a result, some traders are hoping that the bank will show more hawkish intentions as soon as this week. If the bank indicates it could tighten monetary policy in the foreseeable future, the Pound is likely to continue its recent advances against the Australian Dollar.
This would also improve the long-term Pound outlook, although it’s worth noting that formal Brexit negotiations are set to begin soon and will also have a strong effect on the Pound outlook.
Regardless of the results of next month’s UK general election, if UK-EU tensions worsen in early negotiations it will increase market fears that Britain could leave the EU with a bad deal – or no deal at all.
In comparison, the Australian Dollar’s performance has been poor in the past month and the currency’s long-term outlook is uncertain.
Iron ore, Australia’s most lucrative commodity, has recently been called the ‘weakest commodity’ due to its massive price drops in recent months, and the slide in prices has weighed on AUD exchange rates.
This week’s Australian data has also disappointed. Australian building permits were well down in March and March retail sales unexpectedly contracted -0.1% despite being projected to improve to 0.3%.
As a result of this and market uncertainty about US geopolitics, the Pound to Australian Dollar exchange rate is likely to continue to perform strongly until something shifts market sentiment towards the currencies.
Thursday’s Bank of England meeting of course has the potential to alter Pound strength. As markets hope for a more hawkish tone, a dovish or cautious tone will dampen Pound demand later this week.
Poor UK Consumer Price Index (CPI) data next week could also dent Pound optimism. UK inflation is predicted to remain above 2% year-on-year.
Next week will also be key for the Australian Dollar. On Tuesday, the Reserve Bank of Australia’s (RBA) latest meeting minutes will be published. Westpac will publish its May consumer confidence survey on Wednesday and Australia’s April employment report will be published on Thursday.
If Australian employment and confidence are strong, it could prompt investors to become more optimistic on the Australian Dollar’s outlook.
At the time of writing this article, the Pound to Australian Dollar exchange rate trended in the region of 1.75. The Australian Dollar to Pound exchange rate traded at around 0.56.
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