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Pound Slips off Three-Month High vs Australian Dollar as Brexit Dominates

Last week’s high: AU$1.8506

Last week’s low: AU$1.7935

 

Brexit Speculation Boosts GBP/AUD Exchange Rate to Three-Month High

Speculation over Brexit saw the GBP/AUD exchange rate climb sharply over the course of the week, hitting its highest level since October 2018.

As investors saw the odds of a no-deal Brexit declining, in spite of the current impasse, this encouraged demand for the Pound.

This sense of optimism helped to overshadow a disappointing CBI business optimism index, which showed a larger decline than forecast in January.

The mood towards the Australian Dollar, meanwhile, deteriorated in response to worries over the health of the global economy.

With the Chinese economy showing signs of a slowdown confidence in the outlook of the Australian economy diminished.

AUD exchange rates also came under pressure as a result of December’s Australian labour market data.

Although the headline unemployment rate unexpectedly improved to 5.0% this shift was driven by a decline in the number of economically active Australians, leaving the Australian Dollar on a downtrend.

 

AUD Outlook: Easing Inflation to Limit Australian Dollar Appeal

The Australian Dollar is likely to remain on a weaker footing as anticipation mounts ahead of the release of the fourth quarter consumer price index data.

Forecasts point towards the headline inflation rate easing from 1.9% to 1.7% on the year.

While this would keep inflationary pressure below the Reserve Bank of Australia’s (RBA) 2% target investors are unlikely to take encouragement from such a result.

As easing inflation would give RBA policymakers greater incentive to keep interest rates on hold for longer this could leave AUD exchange rates on a downtrend.

Demand for the Pound, on the other hand, may deteriorate further as speculation over Brexit intensifies.

If Tuesday’s parliamentary vote sees another defeat for Theresa May this could weigh heavily on the GBP/AUD exchange rate.

 

Key Events

29th January

00:30   Australia NAB Business Confidence Index

30th January

00:30   Australia Consumer Price Index

09:30   UK Net Consumer Credit

31st January

00:30   Australia Private Sector Credit

 

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

 

Alastair Archbold

Foreign Exchange Manager

aja@fcgworld.co.uk

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