Pound jumps against the Australian dollar amid North Korea tensions
GETTY - STOCK IMAGE The GBP/AUD exchange rate is currently trading up 0.8 per cent
The GBP/AUD exchange rate is currently trading up 0.8 per cent at A$1.666 as risks to the Australian economy and the threat of military action in North Korea prompt investors to pull out of the risky Australian dollar. The pound has been left to react to strength and weakness in other currencies due to the lack of recent domestic data or developments; global safe-haven demand is helping support sterling higher across the board. Minutes from the RBA policy meeting on April 4th revealed that the central bank is still concerned by the strength of the housing market and the weakness of the labour market.
Members noted that these forward-looking indicators had been suggesting more positive employment outcomes than had been realised for some time Reserve Bank of Australia
While a rate hike may help to cool overheating property prices, higher borrowing costs may restrict cash flow for businesses, resulting in slower hiring, more layoffs and a rise in unemployment. The polarised nature of the Australian economy highlights the challenges faced by policymakers in deciding when and how to further stimulate growth. While the RBA made reference to recent strong indicators of an uptick in the labour market, the minutes also stated that; "Members noted that these forward-looking indicators had been suggesting more positive employment outcomes than had been realised for some time."
GETTY - STOCK IMAGE The RBA made reference to recent strong indicators of an uptick in the labour market
In stating that "the labour and housing markets warranted careful monitoring over coming months", the RBA acknowledged that data will remain key to future policy decisions, meaning poor results could shift policymakers back into an easing bias. Recent Chinese data suggests that overseas risks to the Australian economy may also cause problems for the RBA. Industrial production, retail sales and GDP all accelerated above forecast, but analysts were quick to note several worrying signs amongst the strength.
GETTY - STOCK IMAGE Overseas risks to the Australian economy may cause problems for the Reserve Bank of Australia
Activity in the service sector was soft, while growth was fuelled by construction and manufacturing; potentially a serious problem given that the government is attempting to curb activity in both the housing sector and steel manufacturing. Efforts to control overheating property prices are not going well, given that mortgage debt is increasing at a record pace. With Australia relying on the strength of the Chinese economy for much of its own prosperity, suggestions that the data is less impressive than at first glance is keeping traders and economists on edge.
Completing the trifecta of key downside risks for the high-yield Australian dollar, tensions continue to grow in the western pacific after North Korean Vice-Foreign Minister Han Song-Ryol claimed that threats of military action would not deter the country's missile programme. Commenting after US Vice-President Mike Pence hinted at military action in the North (stating "the era of strategic patience is over"), Han said: "We'll be conducting more missile tests on a weekly, monthly and yearly basis." He also warned that, in the event the US pursued direct military action, there would be an "all-out" war.
GETTY Mike Pence hinted at military action in the North