Signs of Reserve Bank of Australia Optimism Drag on Pound Australian Dollar Exchange Rate
The release of the latest Reserve Bank of Australia (RBA) statement on monetary policy saw the Pound to Australian Dollar (GBP/AUD) exchange rate shedding some of its recent gains.
As the statement offered a relatively optimistic view of the economic outlook for 2021 this encouraged the Australian Dollar (AUD) to push higher across the board.
This helped to overshadow the fact that the central bank does not expect to see inflation pick up materially until mid-2023, suggesting that monetary policy is set to remain looser for longer.
As the US Dollar (USD) came under renewed pressure this also helped to lift the risk-sensitive Australian Dollar against its rivals.
The negative nature of December’s finalised retail sales figure, meanwhile, was not enough to keep AUD exchange rates biased to the downside.
Australian Dollar Looks for Support on Stronger Business and Consumer Confidence
Fresh gains could be in store for the Australian Dollar next week if January’s NAB business confidence index picks up as forecast on the month.
Evidence of strengthening business confidence could help to stoke a greater sense of optimism over the first quarter outlook, increasing bets of a stronger gross domestic product reading.
A similarly positive showing from the latest Westpac consumer confidence index may also help to bolster the appeal of the Australian Dollar in the days ahead.
As long as business and consumer confidence show signs of holding up even in the face of ongoing Covid-19 concerns this should keep AUD exchange rates trending higher.
On the other hand, any fresh deterioration in the general sense of market risk appetite could still expose the Australian Dollar to selling pressure.
Lingering worries over the global growth outlook and the strength of the Chinese economy may put the Australian Dollar on the back foot, benefitting the GBP/AUD exchange rate.
Pound Strength Set to Fade Ahead of UK Gross Domestic Product Data
However, the strength of Pound Sterling (GBP) could easily falter in the week ahead as markets brace for the release of the fourth quarter UK gross domestic product report.
If growth falls into negative territory on the quarter this would raise the risk of the country entering a double-dip recession, putting fresh pressure on GBP exchange rates.
As long as markets see reason to fear that the UK economy could continue to shed momentum over the coming months, driven by the impact of tightened social restrictions, the Pound looks set to weaken.
Even so, if December’s accompanying manufacturing and industrial production figures show an improvement on the month this may put a floor under the Pound Australian Dollar exchange rate.
Signs of greater resilience within the manufacturing sector could help to limit concerns over the wider economic outlook, even though the service sector remains the primary contributor to the gross domestic product.
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