Pound Australian Dollar Bounces Up on AUD Selloff
(Updated 16:55, 22/04/2022) The Pound Australian Dollar (GBP/AUD) exchange rate bounced back from this morning’s steep decline, as a shift down in market sentiment weighed heavily upon the risk-sensitive ‘Aussie’.
While Pound support remained negligible, AUD bore the worst of this afternoon’s slump in morale, which seems to have been triggered by central bank policy divergence and worries about sustained inflation risks.
Bank of England (BoE) Governor Andrew Bailey gave a dovish speech today which touched upon such issues, remarking that the bank will only conduct active sales of assets on its balance sheet in stable market conditions and will cease such operations if conditions change.
Meanwhile, fears of a global economic slowdown have targeted commodity-linked currencies in particular, as such a prospect threatens weaker demand for exports such as metal ores and fuel.
Analysts at Reuters observe that signs of a Chinese slowdown are weighing on the Aussie and Kiwi dollars; James Lord, the bank’s global head of foreign exchange, remarks:
‘Usually exchange rates tend to be very correlated and tend to go in the same direction, but we have seen a huge decoupling between commodity exporting and importing currencies since the start of the year.’
Original article continues below:
GBP/AUD Falls on Upbeat AU PMIs, Poor UK Retail Sales
The Pound Australian Dollar (GBP/AUD) exchange rate has spiked down this morning following an extended rise overnight, as weaker-than-expected UK sales data pressurised the Pound (GBP). Meanwhile, the Australian Dollar (AUD) is buoyed by impressive PMI data.
At the time of writing, GBP/AUD is trading at A$1.7652, down 0.3% from today’s opening levels.
Pound (GBP) Tumbles as Retail Sales Slide
Retail sales in the UK fell by 1.4% last month, as opposed to the 0.3% predicted, putting pressure upon the Pound. According to the Office for National Statistics (ONS), affordability started to weigh upon household spending as rising prices were felt more astutely.
The data shows that sales of food went down by 1.1% as rising prices capped purchasing power, and spending in pubs and restaurants increased due to reduced coronavirus restrictions. Moreover, fuel sales fell by 3.8% as nonessential road travel was reduced.
Given increasing inflationary pressures across the UK and globally, analysts forecast that worse is still to come; the Bank of England (BoE) has warned the measure for the rising cost of living could hit 10% later this year, the highest level since the early 1980s.
With public morale falling rapidly, economists ponder the effect of reduced sales on monetary policy. For many, the fall in both sales and consumer confidence adds pressure on the Bank of England for a more cautious approach in hiking rates.
‘Despite repeated upside inflation surprises, we think the Bank of England is likely to tread more carefully on rate rises than markets expect,’ remarks James Smith, economist at ING.
Samuel Tombs, economist at Pantheon Macroeconomics echoes: ‘[The data] surely quashes any remaining chance that the Monetary Policy Committee might raise the bank rate by 50 basis points next month.’
Australian Dollar (AUD) Buoyed by Impressive PMI Data
The Australian Dollar has firmed against Sterling this morning, as upbeat PMI data lends upside support.
April’s flash data shows that service-sector activity in Australia grew on last month’s figures, rising to 56.6. This marks the highest release in 2 months and signals a 3rd consecutive month in which services output expanded.
Furthermore, manufacturing activity hit 57.9 in April, increasing from March’s 57.7 rather than falling back to 57.0 as expected. Faster new orders growth was underpinned by better local and overseas demand.
Prior to these releases, GBP/AUD had climbed steadily to a 4-week high, and the ‘Aussie’ continues to face headwinds against several of its peers. Denting demand for the currency are concerns surrounding China’s aim to cut its steel output in 2022.
If China go ahead with reduced output plans, demand for iron ore – one of Australia’s key exports – could drop significantly. This prospect has rattled AUD investors; but it is not a foregone conclusion.
According to Reuters, a drop in steel production earlier this year could now lead to catch-up production in coming months, meaning iron ore demand would rise as steel mills increased capacity in line with government stimulus spending.
One reporter notes:
‘China’s iron ore and steel markets are having to juggle several different and contradictory factors… the aim of the government to once again limit steel output, while at the same time accelerating economic growth in the second half of the year.’
Pound Australian Dollar Exchange Rate Forecast: UK PMIs to Alter Trading Direction?
Looking ahead, the recent release of the UK’s service-sector and manufacturing PMIs could sway the Pound Australian Dollar exchange rate, if Sterling investors are encouraged by April’s increase in manufacturing activity.
On the other hand, service-sector activity fell below expectations, likely dampening GBP support.
Meanwhile, a speech later in the day from BoE Governor Andrew Bailey could further influence Pound trading dynamics, while the Australian Dollar is likely to trend on external factors, given a lack of additional economic data.