AUDGBP Loses Ground Ahead of UK Inflation

AUDGBP Slumps Despite a Surge in Employment

The AUDGBP exchange rate is lower on Wednesday as the UK released the latest inflation numbers. Both numbers came in near expectations, which helps to take the heat off the Bank of England for now.

The Aussie dollar failed to hold onto a push through the 0.5600 level and trades at 0.5540. The Australian dollar also failed to gain from a preliminary showing on retail sales for March, which added to consumer confidence expectations.

Retail sales beat expectations

Australian retail sales were higher than expected in March, boosted by rising house prices and a positive consumer mood. Sales were 1.4% for the month, which beat analyst forecasts of 1% gain, according to early data from the Australian Bureau of Statistics (ABS).

Retail turnover at A$30.7 billion was 2.3% higher than March last year when the virus pandemic started. Record savings in the country has seen a boom in consumer confidence and that has driven house prices higher, while borrowing costs are at an all-time low. The latest release supports the country’s recovery expectations, and the Reserve Bank of Australia (RBA) has committed to the low-rate policy into 2023 or 2024.

Victoria and Western Australia were the biggest drivers of gains after both states had been forced into brief lockdowns in February. The data is another boost for Australia’s economy but will not affect the exchange rate or monetary policy outlook. Traders have already seen evidence of a revival in confidence and the Aussie dollar has still struggled to advance.

UK inflation update

The latest UK inflation figures were released this morning and showed a flat outcome. Core inflation was steady at 1.1%, while the headline number was 0.1% lower that expectations at 0.7%. The latter was still higher than last month’s 0.4% reading, but it won’t apply pressure to the Bank of England.

Rising prices ahead of the reopening would have been a risk factor for the central bank but the latest data will let them sit on their hands until the next monthly release.

Retail and other services sectors are welcoming droves of consumers again and a burst of household spending should occur, but this would likely cool after the first month. Oil prices also stayed stable near $60 for WTI US crude and $58 for UK Brent and that helped in the latest figures.

The Bank of England are happy to sit at 0.1% interest rates after the last six months saw negative rate expectations fade. The UK is still well below the pre-virus inflation levels of almost 2% and the country saw prices above 3% going into 2018. Central banks have printed a lot of money but it usually goes to bond markets, or to free up banking balance sheets and doesn’t directly filter into household spending.

The AUDGBP has stabilised after the inflation release but it is hard to see a catalyst for the Aussie with all of the recent data priced into the exchange rate outlook.