Pound Australian Dollar (GBP/AUD) Exchange Rate Recovers amid Dip-Buying and Cautiously Upbeat Mood
(Updated 15:30, 2/3/22) The Pound Australian Dollar (GBP/AUD) exchange rate extended its modest recovery today. GBP investors bought the dip as Sterling hit multi-month lows, allowing it to recoup losses against the Australian Dollar (AUD).
A cautious recovery in European risk appetite also seems to have supported the risk-sensitive Pound (GBP). Although the ‘Aussie’ is traditionally considered a riskier currency than Sterling, GBP is much more susceptible to shifts in market sentiment caused by the Russia-Ukraine war. This is because the crisis will have a greater effect on the UK economy than the Australian economy.
The more positive tone was evident in the equity markets, with both the European STOXX 600 and the FTSE 100 posting gains.
The cause of the optimism isn’t immediately clear. It could have been due to the now-confirmed reports of a second round of Russia-Ukraine negotiations.
However, Russia is also intensifying its attacks on key Ukrainian cities, resulting in high civilian casualties. There are also indications that even more violent strikes are on the way. For instance, India is asking Indian nationals to leave Kharkiv by this evening. The advice is based on information given to India by Russia, which suggests that Russian forces may be planning to ramp up their assault on the city.
If this evening brings a further escalation of violence, GBP/AUD could once again lose ground in overnight trade.
Original article continues below:
Pound Australian Dollar (GBP/AUD) Exchange Rate Crawls Up from Four-Month Low
The Pound Australian Dollar (GBP/AUD) exchange rate fell to a near four-month low overnight following stronger-than-expected Australian GDP data.
Meanwhile, the Russia-Ukraine war weighs on the Pound (GBP). However, Sterling clawed back some losses this morning.
Australian Dollar (AUD) Firms on Strong GDP Data
The Australian Dollar (AUD) strengthened overnight as Australia’s GDP growth data beat market forecasts.
Australian GDP grew by 3.4% quarter on quarter in the last three months of 2021, exceeding expectations of 3% growth and recovering from the previous quarter’s 1.9% slump. Year on year, GDP grew by 4.2% in the fourth quarter, above the expected 3.7%.
The expansion came as households unleashed pent-up savings as they emerged from lockdown. However, economists are worried that renewed supply chain snarl-ups and rising energy prices will weigh on economic growth through the first half of 2022.
Jo Masters, Chief Economist at EY in Sydney, commented:
‘It’s the consumer that is cornerstone of the economic recovery. The household sector is cashed-up and keen to spend.
‘How households react to rising inflation and interest rates will be critical to the role of the consumer as the economic engine.’
James McIntyre, an economist at Bloomberg, argues that the fourth-quarter figures do not give an accurate picture of the Australian economy, and that it may take a while for GDP data to normalise. McIntyre said:
‘The rebound in Australia’s GDP in the fourth quarter will probably reverse course in 1Q 2022.
‘It may take until 2Q 2022 for the GDP data to give a clear read on the underlying health of the economy.’
This downbeat note may have limited AUD’s gains. In addition, it seems to be allowing GBP/AUD to claw back some of its losses this morning.
Pound (GBP) Inches Higher but Still Subdued
The Pound is edging higher this morning after sinking close to a four-month low in overnight trade. The recovery in GBP may be in part simply due to a pick-up in trade as the European forex session gets underway.
Sterling has been under significant pressure since Russia invaded Ukraine almost one week ago. Last night, the assaults on key Ukrainian cities intensified. A frustrated Vladimir Putin is scaling up his army’s attacks, leading to higher civilian casualties.
The effect of the war on energy prices and the fallout from economic sanctions placed on Russia are likely to hit the UK economy, which in turn is denting the Pound.
Hopes of negotiations between Russia and Ukraine may be limiting GBP’s losses. However, Ukraine is yet to confirm when delegates will meet for a second round of talks.
GBP/AUD Exchange Rate Forecast: Pound to Remain Weak if Russia-Ukraine War Rages On
With no UK economic data due out today, the Russia-Ukraine war will likely define most movement in the Pound.
So far, Putin has been defiant in the face of crippling economic sanctions and global condemnation. Analysts expect Russia to push ahead with its invasion, despite suffering heavy losses on the battlefield and devastating financial damage at home. As a result, GBP/AUD could slip lower through today’s session and beyond.
If Ukraine and Russia agree a date to continue peace talks then GBP could recover. Likewise, any de-escalation – such as a ceasefire or withdrawal of troops – could support the Pound.
As for the ‘Aussie’ Dollar, tonight’s final services PMI looks set to confirm a strong recovery in Australia’s service sector. Such a result could boost AUD. Australia’s balance of trade data for January will also likely cause some movement.