Risk appetite faltered once again in the wake of a weaker-than-expected Chinese consumer price index, boosting the Pound Australian Dollar exchange rate.
This weighed heavily on the appeal of the ‘Aussie’, particularly after the US non-farm payrolls report proved unexpectedly bullish ahead of the weekend.
However, the Pound struggled to particularly capitalise on the softness of the commodity-correlated currency in the absence of any supportive domestic data.
Confidence in Sterling was somewhat limited in the wake of a disappointing raft of UK PMIs, trade and production data, with the prospect of an imminent Bank of England (BoE) interest rate hike seeming to recede.
While some policymakers have adopted a more hawkish tone in recent days the prospect of tighter monetary policy remains limited, given the increasing pressure coming to bear on consumer finances as a result of the Brexit vote.
The latest UK labour market data could offer the Pound a rallying point, though, if wage growth is shown to have picked up in the second quarter.
Even though growth in average weekly earnings is unlikely to catch up to inflationary pressure in the near future any improvement could encourage greater investor confidence, boding well for a return to higher levels of consumer spending.
As Viraj Patel, Research Analyst at ING, comments:
‘BoE watchers will also be noting Deputy Governor Ben Broadbent’s speech this week (Tue); we suspect his remarks will be more representative of the ‘core’ MPC views, which seem aligned to the idea that a realistic rate hike debate is more of a 2018 story.’
This should limit the upside potential of the GBP AUD exchange rate, encouraging further Pound selling as markets unwind previous BoE rate hike bets.
Lack of RBA Hawkishness to Limit Australian Dollar Appeal
Demand for the Australian Dollar, meanwhile, could increase if the latest set of Australian confidence surveys suggest a greater sense of optimism within the domestic economy.
However, as forecasts point towards a modest weakening of both the NAB business confidence and Westpac consumer confidence indexes the mood towards the antipodean currency could sour further.
As the Reserve Bank of Australia (RBA) has shown no inclination to shift from its neutral policy outlook to a more hawkish one the appeal of the ‘Aussie’ has been limited, given that a number of other major central banks have sounded more optimistic signals recently.
This could leave the Australian Dollar vulnerable to further downside pressure upon the release of the RBA’s meeting minutes next week, with a lack of hawkishness likely to discourage investors once again.
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