GBP/AUD Exchange Rate Gains as Australian Dollar Pushed Lower by Cooling Risk Appetite in Response to More Potential Trade Tariffs from the US
Fears that the US is about to levy new trade tariffs against Chinese goods has seen the GBP/AUD exchange rate make strong gains today, although Pound Sterling has been unsettled by a warning from the Bank of England (BoE) regarding the levels of risky lending in the UK.
Whilst announcing the parameters of this year’s bank stress tests, Threadneedle Street warned that around a fifth of new lending comes right up against the 4.5 times income limit in place to prevent households from taking out excessive loans in order to buy property.
The bank is not taking any action yet, but has put lenders on notice that the risks will be reviewed in June and the bank may increase its capital reserve requirements in order to force banks to hold back more cash as a buffer against bad debts and unexpected shocks to the economy.
Later this year the UK’s banks will be tested in a scenario worse than the financial crisis, to see how they would be able to hold up in an economic scenario where GDP falls by -4.7%, house prices tumble and interest rates climb to 4%.
Concerns of Fresh US Trade Tariffs against China Boosts GBP/AUD Exchange Rate
The potential for the US to implement new trade tariffs in the near future, this time specifically directed against China, has unsettled the Australian Dollar today and allowed the GBP/AUD exchange rate to make gains.
President Donald Trump has already signed into being tariffs of 25% on steel imports and 10% on aluminium imports, which are due to come into effect in a few days’ time, but it already seems that the US administration is eyeing further trade restrictions.
The fears have continued to build since it was revealed last week that the United States Trade Representative Robert Lighthizer had presented the President with a plan to target Chinese imports worth US$30 billion per year.
The imposition of tariffs against China could disrupt the entire network of Asian economies, weakening demand for Australian goods from many of its largest trading partners and therefore proving a significant headwind for the Australian economy.
As a major export economy, Australia has a keen interest in the world’s major powers continuing to uphold free trade, so the threat of two of the world’s leading powers going head-to-head has greatly weakened global risk appetite and pushed the Australian Dollar down versus its peers.
GBP/AUD Exchange Rate Forecast to Continue Gaining Barring Upside Surprise from US Confidence Data
There is nothing left on the UK or Australian economic data calendars today to cause a change in direction for the GBP/AUD exchange rate.
This means that figures from the US are the only ecostats today that could affect the performance of the Pound to Australian Dollar pairing, with any impact upon the US Dollar likely to be mirrored by the Australian Dollar.
The University of Michigan sentiment index for March is expected to show a minor decline from 99.7 to 99.3, which is likely to have only a small impact upon USD and therefore little influence on GBP/AUD.
However, should sentiment be revealed to have risen or fallen sharply, the Australian Dollar could see heavier fluctuations that alter or reverse the pace of Pound Sterling gains.