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Pound to Australian Dollar Rises, as UK Unemployment Falls

Market CommentaryPound to Australian Dollar Rises, as UK Unemployment Falls
Pound to Australian Dollar Rises, as UK Unemployment Falls
Pound to Australian Dollar Rate.

The pound to Australian dollar interbank exchange rate has risen by +0.98% so far this week, from a trough of 1.7851 on Monday 9th to 1.8029 today at the time of writing.

Sterling’s strength versus the Aussie dollar might interest you, if you’re a Briton buying real estate in Australia, or a British business owner making international payments Down Under.

This is because, when you exchange pounds for Australian dollars, you might now get a higher AUD total, compared to if you’d transferred money to Australia earlier this week.

In turn, this might cut your costs to buy property abroad in Melbourne, Sydney or Canberra, or cut your currency for your business costs, to ship Australian products for your British customers.

To stay updated with the pound to Australian dollar interbank exchange rate, visit Pure FX’s Rates & Tools page. Here, select ‘GBP’ to ‘AUD’ to see the interbank rates for the last week.

In addition, to see what’s influencing the value of sterling versus the Aussie on the interbank market, visit our GBP to AUD Exchange Rate Updates page. Here, click on the most recent article.

A first partial explanation why the pound has gained against the AU dollar so far this week is because the UK’s unemployment rate unexpectedly fell further in July, according to statistics yesterday.

A second influence why sterling has risen versus its Australian counterpart is because the Reserve Bank of Australia (RBA) is being increasingly tipped to cut interest rates further, later in 2019.

However, that said, the pound to Australian dollar interbank exchange rate might be affected in the foreseeable future, if the USA and China make progress in resolving their trade war.

Let’s take a more thorough look at these reasons why the GBP has gained versus the AUD. You may find this useful to help you decide when to transfer money to Australia.

Pound to Australian Dollar Rate Rises, as UK Unemployment Falls in July

As I’ve mentioned, a first partial explanation why the pound to Australian dollar interbank exchange rate has strengthened is because, yesterday, we learnt that the UK’s unemployment rate surprisingly fell further in July.

This has contributed to lift sterling, because this tells us that the UK’s labour market remains resilient to Brexit, and in fact is thriving.

According to the Office for National Statistics (ONS) on Tuesday 10th October, UK joblessness unexpectedly fell by -0.1% in the three months to July, to 3.8%. This is below financial market forecasts for +3.9%, as well as June’s figure of +3.9% too.

This is the UK’s lowest unemployment rate since the end of 1974, 45 years ago.

To examine the UK’s falling joblessness in more detail, it’s thought that there are now 32.8 million people aged 16 and over in the UK in work. This is +369,000 more people than a year ago.

In particular, the UK’s increasing employment in the past year has been driven by a +284,000 increase in the number of women in work. There are now 15.5 million employed women in the UK.

The ONS’s Head of Labour Market Statistics, David Freeman, said about these upbeat statistics today that: “The employment rate has remained fairly constant at a joint record high for some months now, while the unemployment rate was last lower at the end of 1974.”

This tells us that the UK is very successful at creating jobs, while unemployment is higher in France or Italy, for example.

Furthermore, it’s worth adding that UK wages continued to accelerate in July too, said the ONS yesterday. To be specific, UK Average Earnings Including Bonuses rose by +4.0% in the three months to July, ahead of economists’ predictions of +3.7%, and June’s +3.8%.

Once UK inflation of +1.9% in July is taken into account, Britons’ real pay packets are rising by +2.1%.

These optimistic unemployment and wage statistics have lifted the pound to Australian dollar interbank exchange rate, because they tell us that the UK’s job market remains healthy.

This is in spite of the rapidly shifting Brexit landscape, and the daily headlines from Westminster and Brussels. This could signal Britain’s economic resilience, thereby contributing to strengthen sterling.

GBP to AUD Rate Strengthens, as RBA Tipped to Cut Interest Rates Further

Furthermore, another factor why the pound to Australian dollar interbank exchange rate has risen is because the Reserve Bank of Australia (RBA) is being increasingly tipped to cut interest rates further.

This has weighed down the Aussie dollar, because when the RBA cuts interest rates, this points to economic weakness in Australia, and lowers returns on Australian investments.

So far in 2019, Australia’s central bank has cut interest rates twice, to an all-time low of 1.0%. These interest rates cuts make borrowing money Down Under cheaper, to encourage businesses and households to take out loans, and stimulate economic activity.

The RBA’s decisions are intended to combat signs of an economic deceleration in Australia recently, such as rising unemployment, reports the Sydney Morning Herald newspaper.

For example, last Thursday 15th August, we learnt that Australia’s jobless rate held at 5.2% in July, as forecast by the financial markets. However, since February this year, Australia’s unemployment has risen by +0.3%, from 4.9%.

Meanwhile, more recently, this Tuesday 3rd September it was revealed that Australia’s retail sales fell by -0.1% in July, below hopes for a +0.2% increase.

In addition, as recently as today, we learnt that NAB’s monthly survey of business confidence in Australia fell to just +1 in August, from +4 the month before.

So based on these economic data, we can see that Australia’s unemployment rate has risen in recent months, retail sales Down Under have fallen, while businesses feel more downbeat. This has prompted the RBA cuts.

Moreover, looking to the foreseeable future, Australia’s central bank may feel obligated to cut interest rates further, if economic conditions continue to deteriorate.

For example, Jane Foley, a strategist at Rabobank, said recently that: "The RBA is likely to be under pressure to ease monetary conditions further.” In fact, the RBA might even begin Quantitative Easing (QE), or unconventional policy easing.

The Reserve Bank could cut interest rates further, or begin QE, because Australia trades closely with the world’s two largest economies, the United States and China.

In recent months, the USA and China have imposed tariffs worth hundreds of billions of dollars onto each other, in a battle for economic dominance, yet suppressing economic activity worldwide, including in Australia. This trade war may compel the RBA to act again, thereby weakening the Australian dollar.

Australian Dollar Could Be Influenced, as USA and China to Schedule Trade Talks

That said though, looking forward, the value of the Australian dollar could be influenced, because last week, the United States and China agreed to schedule a fresh round of trade talks, to try and resolve their trade war.

This could affect the AUD, because if Washington and Beijing can settle their trade dispute, this would increase global trade flows, including Australia’s exports.

Last Thursday, the USA’s and China’s chief trade representatives, China’s Vice Premier Liu He, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, spoke on the telephone, and agreed to negotiate the conditions necessary to hold trade talks in person, sometime in October.

This would be the two superpowers’ 13th round of trade negotiations, according to respected financial news source Bloomberg.

Mr. Liu He’s, Mr. Lighthizer’s and Mr. Mnuchin’s agreement last week follows America’s and China’s imposing yet more tariffs on each other at the start of September.

To be specific, on Sunday 1st September, US President Donald Trump’s government imposed tariffs on $112 billion of Chinese consumer products imports to America, while Chinese premier Xi Jinping retaliated by placing duties on US crude oil imports.

So America’s and China’s trade dispute has recently escalated. However, that said, the USA is yet to impose a 15% tariff on roughly $180 billion of Chinese imports to the USA, due on Tuesday 1st October.

With this in mind, there’s time for the two countries’ trade negotiators to reach an agreement for talks, to avoid placing yet more tariffs on each other, and worsen relations further.

Were the USA and China to agree trade talks, and avoid placing further tariffs on each other, this would benefit Australia’s economic outlook.

This is because, according to Jane Foley, a strategist at Rabobank, "Given Australia’s geographical position and its strong trade links with China, it is often traded as a loose proxy to the latter’s economic outlook." So, looking ahead, this might affect the Australian dollar.

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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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