Risk-Off Sentiment, Poor Data Sees AUD/GBP Dip


Fifty Pounds Sterling (GBP)

The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate experienced its first run of losses for a while this week as lowered risk sentiment caused by heightened USD favour took hold of the forex market.

Investors Chose ‘Safe-Haven’ Currencies Over Risk-Sensitive Australian Dollar (AUD)

Global ecopolitical news this week has seen the Australian Dollar’s uptrend pause. The bullish run enjoyed by the ‘Aussie’ over the past month looks to be over as the AUD/GBP pair has lost around -30 pips over the course of the week.

While not a huge loss, the ‘Aussie’ was largely unable to sustain its gains after the exchange rate hit a low of 0.5296 earlier in the week. At the time of writing, the pair was trending in the region of 0.5359.

The first series of hits to the Australian Dollar was the ‘Panama Papers’ leak. The documents named members of the world’s elite who had taken part in tax avoidance schemes, influencing markets to invest in low-risk, ‘safe-haven’ currencies like USD and JPY to minimise panic-fuelled losses.

While initially the Australian Dollar was able to mitigate ‘Panama Papers’ losses due to reports of record-breaking iron ore shipments and healthy growth from Australia’s trade partner China, risk-off sentiment finally caught up to the ‘Aussie’ later in the week.

A set of positive US data releases, followed by praise and optimism for the US economy from Federal Reserve policymakers, encouraged investors to settle on the US Dollar and strengthened risk-off sentiment.

AUD’s losses were sealed on Thursday morning when AiG released March’s performance of construction index score. The figure of 45.2 showed an even bigger contraction than February’s 46.1 and stoked resurfaced fears of Australia’s housing crisis.

AUD/GBP Avoids Further Losses on Poor UK Data and Weakened Pound (GBP)

Data and political worries battered the Pound this week. While AUD/GBP looks to end the week lower than the week’s opening levels, losses could have been more extensive if not for Britain’s own domestic issues.

UK Prime Minister David Cameron was dragged into the ‘Panama Papers’ scandal amid allegations that his father, and by extension his family, had benefitted from tax havens.

Britain’s government also used £9m of taxpayer money to fund a Pro-EU leaflet, frustrating the public and worsening ‘Brexit’ fears in investors.

British datasets have also harmed Sterling’s chances this week. Labour output from Q4 2015 reportedly dropped -1.2% in its fastest plummet since 2008, and the UK’s goods trade deficit with the EU worsened to a record breaking -£8.6b.

The overall UK trade deficit narrowed from -£5.23b to -£4.84b, letting down analyst predictions that it would thin to a more optimistic -£3.4b.

February’s UK industrial and manufacturing production also printed negatively, with the industrial production score coming in at -0.5% and the worst decline since 2013. Manufacturing production, on the other hand, worsened by a considerable -1.8% from the same period in 2015.

AUD/GBP Exchange Rate Likely to Gain Slowly of Next Week’s Key Data

Currently gaining slowly but steadily, the AUD/GBP pair seems likely to avoid large inspired movements as investors await important data from Australia and the UK next week.

Australian housing data is due for release through Monday and Tuesday, including February prints for home loans and house affordability. Monday will also see investment lending figures, with business confidence figures following on Tuesday.

Investors may also be holding their breath for Thursday’s key unemployment rate and employment change scores. If the March print for unemployment drops below 5.8%, this would be seen as healthy for the Australian economy.

Britain is also due for a busy data week next week with house prices and various price index figures due for release on Tuesday; most importantly March’s key CPI score.

Later in the week the Bank of England (BoE) meets to announce its latest decision on Britain’s interest rates and asset purchasing targets.

While the interest rate is currently forecast to remain at the record-low 0.50%, a long-term period of ‘Brexit’ uncertainty and poor UK data may influence even more dovish behaviour in BoE policymakers which would likely weaken the Pound.

At the time of writing, the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate was trending in the region of 0.5359. The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was trending around 1.8653.

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