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Pound to Australian Dollar Hits 3-Week High, as AU Joblessness Rises

Market CommentaryPound to Australian Dollar Hits 3-Week High, as AU Joblessness Rises
Pound to Australian Dollar Hits 3-Week High, as AU Joblessness Rises
Pound to Australian Dollar.

The pound to Australian dollar interbank exchange rate stands at 1.8898 today. This is its highest in over three weeks, or since October 21st.

By comparison, back on November 7th, British sterling was as low as 1.8551 versus the so-called Aussie dollar. So it’s since strengthened by close to 3.5 cents, or by 1.87%.

This may benefit you, because when you transfer money to Australia, you might get a higher Australian dollar total, compared to if you’d exchanged currencies in the last three weeks.

In turn, this could make it more affordable for you, if you’re buying property abroad in Sydney or Melbourne, or if you’re emigrating Down Under with your family for a job opportunity.

To stay up-to-date with the pound to Australian dollar interbank exchange rate, visit Pure FX’s Rates & Tools page. Here, select ‘GBP’ (Great British Pound) to ‘AUD’ (Australian Dollar).

Also, to check what’s affecting the value of sterling versus the Aussie dollar on the interbank market, visit our GBP to AUD Exchange Rate Updates page. Here, click on the latest article.

One reason why the GBP to AUD interbank exchange rate has reached this three-week high is because Australia’s unemployment rate fell in October, said official statistics yesterday.

Another factor why the pound has gained in value versus the Australian dollar is because, with Australia’s joblessness higher, the Reserve Bank of Australia is likelier to cut interest rates.

A third partial explanation why British sterling has risen against the Aussie dollar is because, this week, US President Donald Trump was unclear about whether he’d sign a trade deal with China.

A fourth reason why the pound to Australian dollar interbank exchange rate has strengthened is because, in the UK, the Conservatives and Brexit Party may today agree an electoral pact.

Pound to Australian Dollar Rate Gains, as Australia’s Unemployment Rises in October

As I mention, one reason why sterling has strengthened versus the Australian dollar on the interbank market is because Australia’s unemployment rate increased in October, said official statistics this morning.

This points to economic weakness Down Under, as rising joblessness means that fewer Australians can shop or take out a mortgage, slowing GDP (Gross Domestic Product) growth.

To be specific, according to the Australian Bureau of Statistics (ABS) today, Australia’s unemployment rose by 0.1% in October, to 5.3%. This was in line with economists’ forecasts.

However, this rising joblessness is well above the RBA’s official target of 4.5% unemployment, while this morning’s jobs report also contained disappointing details that bode ill for Australia’s economy.

For example, Australia’s employment fell by 19,000 in October, said the ABS today. This was well below financial markets’ predictions for a 15,000 increase, as well as September’s 12,500 gain.

It’s also the first decline in Australia’s employment in 17 months. Moreover, Australia’s labour force participation rate fell by 0.1% last month, to 66%, as more citizens stopped looking for work.

Also, Australia’s so-called underutilisation rate, which measures the number of unemployed people and people in part-time jobs who want to work more, rose by 0.3% in October, to 13.8%.

So this suggests that there’s lots of slack in Australia’s labour market, in which people may be technically employed, but they’d like to work more hours, or in positions with permanent contracts.

Unemployment in October rose by 0.3% in Australia’s most populous state, New South Wales, to 4.8%. Here, positions fell by 10,300. Joblessness rose by 0.1% in the next most inhabited state, Victoria, up to 4.7%. Also, the northern state of Queensland shed 14,000 jobs last month.

So this signals growing weakness in Australia’s job market, thereby dragging down the Australian dollar.

GBP to AUD Exchange Rate Rises, as RBA Likelier to Cut Interest Rates

In addition, another factor why the pound to Australian dollar interbank exchange rate has hit this three-week high is because, what with Australia’s unemployment rate rising, the Reserve Bank of Australia (RBA) now looks likelier to cut interest rates further.

When the RBA reduces borrowing costs, this makes buying Australian assets less profitable, thereby reducing the Aussie dollar’s value.

Already, the RBA has cut interest rates three times in 2019, down to 0.75%, their all-time low. As recently as last week, the antipodean central bank kept borrowing costs at this level, to allow the recent cuts to “filter through” to Australia’s economy, and measure their effect.

However, this morning’s downbeat unemployment data suggests the cuts are yet to yield a positive impact.

With this in mind, the financial markets are increasingly factoring in the possibility that the RBA could reduce borrowing costs further in 2020, perhaps in February, according to Australian Financial Review.

This is particularly the case, because for the moment, Prime Minister Scott Morrison’s federal government has said that it won’t increase spending, to support Australia’s economic growth. So this responsibility continues to fall to the RBA.

Of course, if the Reserve Bank continues to ease monetary policy, it will soon reach the effective lower bound, of 0.0%.

If this happens, and the RBA wishes to further support Australia’s economy, the central bank may even engage in its own form of what’s called Quantitative Easing (QE). This would flood Australia’s financial markets with money, to reduce the cost of a loan.

The advantage of QE is that it enables central banks to further cut borrowing costs, even when interest rates are at 0.0%.

However, on the flipside, QE greatly increases the quantity of Australian dollars available in the financial markets. This tends to weaken the value of a currency. So the possibility that the RBA could engage in QE sometime in 2020 is weakening the Australian dollar.

For example, Callam Pickering, an economist at Indeed, says that “Australia’s latest labour force figures make another rate cut a certainty. To kick-start the economy we will need greater stimulus.”

“Much more needs to be done, whether it be through further rate cuts, unconventional monetary policy or, in an ideal world, fiscal stimulus,” adds Mr. Pickering. So this has weighed down the Aussie dollar today.

Sterling Vs Australian Dollar Rises, as Trump Ambiguous About US/China Trade Deal

Moreover, another partial explanation why the pound to Australian dollar interbank exchange rate has reached this three-week high today is because, earlier this week, US President Donald Trump was unclear about whether he’d sign a trade truce with China, as the financial markets hope.

This was weakened the AUD, because Australia trades widely with both America and China.

At a speech in New York this Tuesday 12th, it was expected that Mr. Trump would announce his decision whether to impose tariffs on EU vehicle imports, and an update on US/China trade talks.

However, in the event, Mr. Trump laid out his platform to be re-elected as US Commander-in-Chief in 2020, and focused comparatively less on the topics that investors had hoped to hear about.

Mr. Trump did repeat his previous assurance that he’d only sign a trade truce with China, if it’s “the right one”, according to The New York Times.

So the US President’s ambiguity has left the financial markets on tenterhooks, about whether he’ll go ahead and sign a “first phase” trade pact with Beijing, which is currently being negotiated. Alternatively, Mr. Trump could increase his tariffs on China, in early December.

For example, Marc-Andre Fongern, a strategist at MAF Global Forex, said that "Donald Trump's recent speech has been largely disappointing. The US government gives the impression of not being seriously interested in a partial deal with China.”

Mr. Fongern added: “The trade conflict remains a mystery for the markets as the respective strategies of both governments are hardly transparent."

This has weakened the Australian dollar, because Australia trades closely with both the USA and China. In particular, the antipode nation exports vast quantities of commodities like iron ore and copper to China, to fuel the Asian giant’s construction industry.

Hence, if the US/China trade war continues, this may also slow Australia’s economic growth, thus reducing the value of the AUD.

Pound Versus Australian Dollar Gains, as Tories and Farage May Sign Pact

Furthermore, a fourth factor why the pound to Australian dollar interbank exchange rate has reached this three-week high is because it’s been reported that the Conservative Party may today sign an electoral pact with Nigel Farage’s Brexit Party.

This is for Mr. Farage to field candidates in fewer constituencies, at the UK’s election on December 12th, raising the odds of a Tory victory.

According to The Telegraph newspaper, Prime Minister Boris Johnson has proposed to Mr. Farage that the Conservatives field what are called “paper candidates”, in 40 constituencies where the Brexit Party may win.

“Paper candidates” are candidates in name only, where the Tories would appear as an option on the ballot paper, yet these candidates would receive no official support.

In return, Mr. Johnson is reportedly asking for Mr. Farage not to field candidates, in Labour-held swing seats, where the Conservatives stand a chance of winning.

Already, this Monday Mr. Farage announced that he won’t compete in the 317 seats that the Conservatives won at 2017’s general election. So the Tories’ aim is to win further seats from Labour, without Brexit Party competition.

For the moment, it’s thought that Mr. Farage is yet to accept this electoral pact. Moreover, the deadline for the UK’s political parties to announce where they’ll field candidates is today at 16.00 GMT. So if the Tories and Brexit Party are to reach a deal, they must do so soon.

However, the mere possibility of a pact has increased the value of the pound to Australian dollar interbank rate.

This is because, if the Brexit Party competes with the Conservatives in fewer constituencies, this increases the odds that a single political party will win next month’s vote.

In turn, this will provide greater clarity to the financial markets and British businesses about the UK’s economic and political direction, while contributing stability too. This may support the UK’s future economic growth.

For example, Peter Kinsella at Union Bancaire Privé says that, if one political party forms a majority government next month, “It means you get a Brexit deal and political certainty.”

Meanwhile, Neil Wilson at Markets.com says that “a clear, decisive election win will provide clarity on Brexit – anything else becomes messy." So this possibility of a clear victory has strengthened sterling.

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or Contact Us.

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