AUD/GBP Exchange Rate Slumps from 15-Month Best as Pound Surges on ‘Brexit’ Polls


Australian Dollars (AUD)

Despite poor UK data the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate retreated ahead of the weekend as investors piled back into the softened Pound.

AUD/GBP Exchange Rate Retreated from Fifteen-Month High despite Disappointing UK Borrowing Figures

The ‘Aussie’ (AUD) rallied on Thursday with encouragement from the first quarter NAB Business Confidence report. While the headline figure suggested that sentiment had weakened from 5 to 4 at the start of the year, this was counteracted by signs of sustained improvement in various areas of the domestic economy. In part the index was pulled down by the substantial market volatility and uncertainty seen in the earlier months of the quarter, with indications suggesting that confidence could see a more sustained improvement in coming months. This more bullish indication consequently pushed the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate to a fifteen-month best of 0.5462.

Despite the UK posting disappointing retail and public finance figures later on Thursday this failed to keep the AUD/GBP exchange rate on an uptrend. Markets initially pushed the Pound (GBP) lower across the board as the UK was found to have significantly overshot its borrowing target for the 2015-2016 fiscal year. While this rather undermines the likelihood of the national deficit being eliminated by 2020, as Chancellor of the Exchequer George Osborne had pledged, Sterling soon rallied as the latest EU referendum polls continued to point towards a ‘Remain’ camp lead.

Weaker US Data Failed to Substantially Shore up Australian Dollar (AUD)

Some measure of confidence returned to the antipodean currency ahead of the weekend, as the odds of an imminent interest rate hike from the Federal Reserve continued to decline. The latest gauge of the US manufacturing sector pointed towards a decline in growth in April, while the Leading Indicators Index showed a more limited rebound in the economic outlook than forecast. As looser US monetary policy reduces the pressure on the Reserve Bank of Australia (RBA) to consider cutting rates this somewhat boosted the appeal of the ‘Aussie’.

Nevertheless, in spite of a dearth of supportive UK data releases the Pound extended its bullish run against rivals on Friday, keeping the AUD/GBP exchange rate on a downtrend.

AUD/GBP Exchange Rate Forecast: Volatility Predicted with Australian and UK GDP Reports

Next week the Australian Dollar could recover its recent strength on the back of the first quarter Australian GDP report, providing the economy is found to have strengthened or held steady. However, a downside surprise could significantly dampen the appeal of the antipodean currency, with researchers at Westpac noting that;

‘The pass though from the weaker AUD is only modestly offsetting an overall benign inflation environment. Falling fuel and fruit prices add to the general seasonal softness while housing costs remain well contained.’

With the UK also due to release its first quarter growth figures on Wednesday the AUD/GBP exchange rate is likely to see some heightened volatility. Should the British economy have faltered at the start of 2016 thanks to ‘Brexit’-based uncertainty, the Pound could stand to return to a significantly weaker footing.

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