Pound Australian Dollar (GBP/AUD) Exchange Rate Sheds Ground as Chinese Trade Surplus Grows

Strong Chinese Trade Weighs on Pound Australian Dollar (GBP/AUD) Exchange Rate

A surprise widening of the Chinese trade surplus for December saw the Pound to Australian Dollar (GBP/AUD) exchange rate trending lower this morning.

Demand for the Australian Dollar (AUD) picked up sharply in response to the Chinese data, benefitting from the improved sense of market risk appetite.

As the antipodean currency often functions as a market proxy for confidence in the world’s second-largest economy this latest sign of trade resilience gave AUD exchange rates a solid boost.

Although anxiety over the latest global wave of Covid-19 infections lingered this was not enough to dampen the effect of the widened trade surplus.

Hopes that the Chinese economy could sustain its recovered momentum heading into 2021 gave investors cause for optimism, leaving the GBP/AUD exchange rate on the back foot.

Negative UK GDP Forecast to Drag GBP Exchange Rates Lower

The mood towards Pound Sterling (GBP) could easily sour further ahead of the weekend, meanwhile.

November’s UK gross domestic product data looks set to weigh heavily on GBP exchange rates, with forecasts pointing towards a sharp contraction on both the month and the year.

Evidence of a fresh downturn in economic growth could push the Pound lower across the board on Friday as bets of a fourth quarter contraction pick up.

As long as the economy appears on course to suffer a double-dip recession the GBP/AUD exchange rate appears at risk of shedding further ground in the near term.

Unless growth shows a smaller decline on the month than the -5.7% slump forecast support for the Pound may prove generally limited.

GBP/AUD Exchange Rate Looks for Support on Narrowed UK Trade Deficit

Even so, if November’s UK trade deficit narrows as forecasts suggest this could help to limit the downside potential of GBP exchange rates.

A narrowed deficit could help to ease some of the anxiety over the fourth quarter outlook, suggesting that conditions saw a limited improvement.

However, the month’s manufacturing and industrial production figures may also encourage volatility for the GBP/AUD exchange rate.

Any slowdown in production growth could add to existing worries over the underlying health of the UK economy, reflecting the impact of the second national lockdown.

Without significant evidence of industrial resilience the Pound looks set to remain biased to the downside.

Solid Chinese Growth Data Set to Shore up Australian Dollar Further

The fourth quarter Chinese gross domestic product report may give AUD exchange rates a fresh boost next week, meanwhile.

As long as the quarterly growth rate shows an uptick the Australian Dollar may push higher across the board, benefitting from confidence in the Chinese outlook.

Another solid quarter of economic activity would encourage hopes that the Chinese economy will lead the global recovery in the months ahead, shaking off the impact of the Covid-19 crisis.

On the other hand, if growth momentum falls short of forecast this may puncture the sense of bullishness shoring up the Australian Dollar.

Louisa Heath

Contact Louisa Heath