Pound Australian Dollar (GBP/AUD) Exchange Rate Movement Limited by Lack of Data
(Updated 16:45, 08/04/2022) The Pound Australian Dollar (GBP/AUD) exchange rate continued to trade sideways this afternoon, as a lack of economic data left both currencies exposed to external headwinds.
Market mood soured somewhat on account of a Russian missile strike on Kramatorsk train station in Ukraine: the latest reports confirm that the attack killed 50 people, including 5 children.
Ukrainian President Volodymyr Zelenskyy condemned Russia’s actions as ‘evil that has no limits’, explaining that the station was crowded at the time of the airstrike because residents had been urged to leave the area ahead of a major Russian military assault expected next week.
Further damaging both Sterling and ‘Aussie’ trading appetite are forecasts of a 8.5-15% contraction in Russian GDP this year as 60% of Russian foreign currency reserves are frozen, stopping Russia from paying more than $600m to holders of its sovereign debt earlier this week.
While tighter sanctions appear to be having the desired effect on Russia’s economy, such moves threaten to disrupt the wider economy at a time when UK households are more worried about their personal finances than they have been in at least a decade.
Sterling faces pressure against the US Dollar (USD) in particular, as America’s central bank has underlined its determination to tame inflation by tightening monetary policy, while in Australia, Financial Times analysts worry that the economy is exposed to volatile commodity price cycles.
FT writer Satyajit Das remarks:
‘Australia is increasingly boxed in by its narrow economy. For example, emission reduction measures clash with reliance on fossil fuel exports.
The country’s ability to increase interest rates is constrained by fears of mortgage stress and precipitating house price falls that would create financial instability.’
Original article continues below:
GBP/AUD Exchange Rate Trends Sideways on Moderate Risk Appetite
The Pound Australian Dollar (GBP/AUD) exchange rate is trading in a narrow range this morning as risk-on trading sentiment lends upside, while US Dollar (USD) strength caps gains.
At the time of writing, GBP/AUD is trading at A$1.7465, virtually unchanged from today’s opening levels.
Pound (GBP) Weakens on Lack of Supporting Data
The Pound (GBP) is sinking against a majority of its peers today as a lack of domestic data exposes the currency to losses.
While trading sentiment is relatively upbeat, strength in the US Dollar dents Sterling prospects: hawkish minutes from the FOMC and bullish comments from Federal Reserve officials boost USD to the detriment of its trading partners.
Contrary to Federal Reserve forward guidance, the Bank of England (BoE) has struck a more dovish tone of late, further suppressing support for the Pound.
Opening a BoE conference on sovereign capital markets research, BoE policymaker Huw Pill remarked yesterday:
‘Some of the papers to be presented here … give reason to question whether monetary policy is the appropriate tool to address these sovereign market functioning concerns.’
Furthermore, analysts at Commerzbank consider that GBP is at risk of suffering a significant fall, as current market expectations may be overly optimistic.
Bank officials noted that so as long as economic weakening is not reflected in the data, markets will likely expect the BoE to hike interest rates above 2% by the end of the year; any risk of the market then having to lower its expectations puts pressure upon the Pound.
Australian Dollar (AUD) Slides Lower on Downward Correction
The Australian Dollar (AUD) is tipping down against its rivals so far today, as analysts note that the currency’s upside momentum may be exhausted.
A rally in commodity prices supported the ‘Aussie’ over the past few weeks, but AUD has surrendered some of its gains recently over waning risk appetite and disappointing domestic data.
Earlier in the week, Australia’s finalised services PMI missed expectations, and yesterday’s trade balance revealed a smaller-than-expected surplus.
Meanwhile, the situation in Ukraine has inspired further market volatility, as Russian aggression mounts. As Russian forces withdraw from around Kyiv, satellite footage has revealed scenes of civilian massacre.
The prosecutor’s office revealed this morning that Ukraine is now investigating 5,149 alleged cases of war crimes committed by Russian forces; the news comes after a statement from Ukrainian President Volodymyr Zelenskyy confirming that devastation in the town of Borodyanka is even worse than in Bucha, where Russian forces’ suspected killings of civilians received global condemnation.
There are some signs of hope, however, as the EU approves an embargo on Russian coal imports and UK Prime Minister Boris Johnson meets with German Chancellor Olal Scholz to discuss reducing Europe’s dependency on Russian energy.
The Kremlin has admitted suffering ‘significant losses’ of troops, which may inspire some risk-on support for the Australian Dollar.
Pound Australian Dollar Exchange Rate Forecast: UK GDP to Inspire Sterling Upside?
Looking ahead, UK GDP data is likely to be the major market-mover on Monday, alongside developments in Ukraine and subsequent trading sentiment.
The UK economy is expected to have expanded by 0.5% in February 2022 – a smaller increase than in January but an increase nonetheless. If the data prints as expected, Sterling may enjoy upside.
Meanwhile, the ‘Aussie’ could take direction from Chinese inflation data – if the CPI in China increased by 1.2% in March, on an annualised basis, AUD might enjoy tailwinds of its own.