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GBP/AUD Surges as Risk Appetite Ebbs

Friday’s high: £1.8013

Friday’s low: £1.7864

GBP/AUD Exchange Rate Climbs on Fears of an Escalating Global Trade War

The Pound Australian Dollar (GBP/AUD) exchange rate climbed last Friday, capitalising on escalating fears of a possible global trade war and the severe implications it could have on riskier commodity currencies like the ‘Aussie’ Dollar.

Investors (abhorring uncertainty and trade intervention in general) were particularly concerned with the appointment of Larry Kudlow as US President Donald Trump’s new Economic Advisor, with Kudlow quickly echoing calls for a tougher stance on trade with China.

Kudlow acknowledged China’s ginormous trade surplus with the US, as well as their extensive import tariffs on a number of goods as reasons why China needs ‘a comeuppance on trade’.

Beyond this Kudlow also called for a ‘coalition of the willing’, asking that other countries join the US in standing up for fairer trade with Beijing.

Australia being exempt from US President Donald Trump’s import tariffs on steel and aluminium did little to negate this anxiety, with markets still very much concerned that a retaliatory response from Beijing could lead to global tariffs and sanctions – an eventuality that could severely limit the Australian economy.

This sentiment dominated for the ‘Aussie’ Dollar last week, but given the sheer number of releases on the calendar this week, GBP/AUD could find fresh room to manoeuvre.

Australian Dollar Outlook: US Fed Rate Decision and Aussie Employment in the Spotlight

Last week might’ve been a quiet one for British and Australian data, but markets should have plenty to chew over this week in the form of the highly anticipated US Federal Reserve rate decision, Australia’s employment figures and a raft of ecostats from the UK.

Friday’s run of upbeat US private sector readings gave further credence to the possibility that the US Federal Open Market Committee (FOMC) could raise interest rates this week, but concerns remain regarding the slightly muted US inflation and wage growth readings.

If the US Fed does raise the baseline interest rate then it could cement market expectations for 4 rate hikes this year, siphoning demand away from the Australian Dollar as the ‘Greenback’ (USD) rises.

Beyond this, Australia’s employment readings will be of interest to the markets as well as the Reserve Bank of Australia’s (RBA) March meeting minutes, though given the RBA’s ongoing cautious-but-hopeful stance, it is unlikely that the minutes will reveal a great deal.

Finally, the UK’s inflation and wage growth readings will likely be significant, as well as developments on the Brexit negotiation process.

If inflation and wage growth in the UK shifts higher (or remains high in the case of consumer prices) then it could make the case for a rate hike in May from the Bank of England (BoE), an event that could give GBP/AUD a big boost.

Key Events – Week Starting March 19th

Tuesday

00:30 AUD RBA March Meeting Minutes

09:30 GBP Consumer Price Index

23:30 AUD Westpac Leading Index

Wednesday

09:30 GBP Jobless Claims Change

09:30 GBP Average Weekly Earnings

18:00 USD US FOMC Rate Decision

Thursday

00:30 AUD Employment Change

00:30 AUD Unemployment Rate

12:00 GBP Bank of England Bank Rate

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To keep up to date with the Australian Dollar, visit the AUD blog in our Currency News section.

James Baxter
Senior Currency Broker
T: 01442 892 062

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