Pound Australian Dollar (GBP/AUD) Exchange Rate Unchanged on Lack of Data

GBP/AUD Extends Slight Gains on ‘Aussie’ Headwinds

(Updated 16:35, 11/01/2022) The Pound Australian Dollar (GBP/AUD) exchange rate continues to trade with a slight upward trajectory this afternoon, as the Pound (GBP) finds renewed strength despite Covid headwinds.

Sterling is facing an onslaught of mixed trading stimuli, including NHS staffing issues, optimism over the effect of Omicron on the economy, Bank of England (BoE) rate hike bets, Brexit dynamics and hopes of a pay rise amongst working professionals.

Upside pressure appears to outweigh downside, however, as GBP profit-taking seems to have abated. Also lending support, US inflation is expected to hit 7% tomorrow – well exceeding the Federal Reserve’s 2% target – and potentially limiting USD gains, to the benefit of the ‘Greenback’s peers.

Commenting on the UK economy, The Financial Times struck an upbeat tone today, backing UK PM Boris Johnson’s decision to ride out the Omicron wave with minimal restrictions. The publication cites multiple economists, most of whom ‘expect the recovery from the initial pandemic shock to continue’;

‘Many economists now believe they will be able to look back at the latest variant as nothing more than an annoying blip for the UK economy by the spring.’

Original article continues below:

Pound Australian Dollar Exchange Rate Wavers as AU Trade Balance Misses Forecast

The Pound Australian Dollar (GBP/AUD) exchange rate is trading in a narrow range this morning following mixed data from Australia and disappointing UK sales data. Australia’s trade balance missed estimates, but AU retail sales increased by more than expected.

At the time of writing, GBP/AUD is trading at A$1.8939, virtually unchanged from today’s opening levels.

Australian Dollar (AUD) Weakens ahead of Powell Testimony

The Australian Dollar (AUD) is resisting significant downside this morning, as a smaller-than-expected trade surplus is countered by upbeat retail sales data. Sales in Australia in the month of November rose by 7.3% rather than the 3.9% expected, lifting profits to a record high of A$33.42bn.

Nevertheless, the ‘Aussie’ has come under some pressure ahead of Federal Reserve Chairman Jerome Powell’s testimony this afternoon, as Powell is expected to reiterate that the Fed will stop higher inflation, noting that the US economy has gained strength despite pandemic conditions.

A risk-off currency, strength in the US Dollar exerts downside on risk-sensitive currencies such as AUD. Moreover, expectations for monetary policy tightening from the Federal Reserve puts pressure upon other central banks to keep pace: markets have fully priced in the possibility of a Fed lift-off in March and anticipate four rate hikes in 2022.

Also weighing upon the Australian Dollar, GPs are warning of serious failings in the country’s children’s vaccine rollout. President of the Royal Australian College of General Practitioners, Dr Karen Price reports:

‘Most parents understandably want their children to be vaccinated before the school year begins… But I can’t imagine we will achieve this at the current pace of the rollout.’

Pound Finds Strength despite Poor Retail Data

The Pound (GBP) is climbing against the majority of its peers today despite disappointing sales data from the British Retail Consortium. The BRC revealed this morning that from December 2021-2022, sales increased by only 0.6% as opposed to the 1.5% expected; last month’s reading was revised up to 1.8%.

Nevertheless, GBP is buoyed by Bank of England (BoE) rate hike bets – investors widely expect policymakers to raise interest once again in February by 25bps.

Analysts at ING assert:

‘We are looking for a decent November UK GDP release of 0.4% month over month, which should keep expectations alive of a further Bank of England rate hike on February 3.’

Also pressuring the central bank to address inflation, UK companies plan to increase prices by 5% in the coming year, according to the BoE’s monthly survey of chief financial officers: the highest increase since the central bank started questioning businesses in 2017.

GBP/AUD Exchange Rate Forecast: AUD Losses to Extend on Fed Speech?

Looking ahead, the Pound Australian Dollar exchange rate may continue to rise this afternoon if Chairman Powell’s testimony inspires strength in the US Dollar (USD), pressuring risk-on currencies.

Meanwhile, risk sentiment and other external factors could influence trading. UK Prime Minister Boris Johnson has raised the possibility of reducing the quarantine period to five days from seven – further updates could affect GBP/AUD.

Olivia Evershed

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