Pound Australian Dollar (GBP/AUD) Exchange Rate Extends Losses

Pound Australian Dollar Exchange Rate Trends Lower on Lack of Significant Data

(Updated 16:55, 15/05/2022) The Pound Australian Dollar (GBP/AUD) exchange rate continued to sink this afternoon, as a lack of economic data exposed both currencies to external pressures.

A weaker US Dollar (USD) lent some support to both the Pound and the Australian Dollar. As US consumer confidence tumbled, economists anticipated that risk assets may benefit from a ‘bad news is good news’ mindset as markets price in a less restrictive Federal Reserve.

Gains were capped, however, as continuing recession worries weighed upon Sterling and Brexit tensions persisted. Meanwhile, the conflict in Ukraine capped risk-on gains for the ‘Aussie’.

Original article continues below:

GBP/AUD Exchange Rate Falls as Shanghai to Reopen

The Pound Australian Dollar (GBP/AUD) exchange rate is sliding this morning as the Australian Dollar (AUD) benefits from Chinese tailwinds. In a statement published early this morning, deputy mayor Wu Qingat of China’s Shanghai city said Shanghai will aim to open up by mid-May.

At the time of writing, GBP/AUD is trading at A$1.7712, down 0.3% from today’s opening levels.

Australian Dollar (AUD) Finds Strength on Renewed Risk Appetite

The Australian Dollar is climbing against its peers this morning on upbeat comments from the deputy mayor of Shanghai. Modest risk-on trading sentiment also supports the ‘Aussie’.

The prospect of Shanghai city reopening by mid-May has bolstered market mood; the Shanghai Composite Index gained traction on this development and was last seen rising 0.8% on a daily basis.

Given the bearing of China’s economy on the global financial system, positive news for China generally strengthens trading sentiment – the Australian Dollar benefits specifically due to Australia’s close trading relationship with China.

Market mood is also buoyed by comments from FOMC chairman Jerome Powell, who confirmed yesterday that the Federal Reserve bank will likely raise rates by 50bps at its next two meetings.

Powell’s comments were reassuring amidst a volatile trading week – the collapse of the TerraUSD stablecoin threw crypto trading into disarray, with a ripple effect on the wider currency market.

Nevertheless, Powell’s comments are tempered with a warning that the US economy may suffer a ‘hard landing’, as high inflation and economic problems beyond the States could thwart his efforts to cool prices without a recession.

Pound (GBP) Wavers on Fears of Recession

The Pound (GBP) is benefitting today from stronger risk appetite in the wake of a volatile trading week.

Nevertheless, fears of a UK recession cap gains for the currency, with pressure mounting upon the government to deliver an emergency summer mini-budget. Chancellor Rishi Sunak is facing calls from the Labour party, the TUC and the British Chambers of Commerce to take urgent action.

Economists warn that ‘the chances of a recession have just risen’ as it seems likely that GDP will contract in the second quarter; addressing the weaker-than-expected UK growth figures, Sunak said:

‘The UK economy recovered quickly from the worst of the pandemic… but I know these are still anxious times.

Our recovery is being disrupted by Putin’s barbaric invasion of Ukraine and other global challenges but we are continuing to help people where we can.’

Meanwhile, analysts forecast an uneven path for Sterling in the weeks ahead. Representatives from ING bank say:

‘With Brexit-related risks back to the fore as the UK appears close to unilaterally scrapping parts of the Northern Ireland agreement, the downside risks for GBP remain quite significant and a move to 1.2000 next week may be on the cards.’

Tensions are high as the leader of the Democratic Unionist Party in Northern Ireland threatens to paralyse the upcoming Stormont assembly in protest of post-Brexit checks being enforced on imported goods.

Pound Australian Dollar Exchange Rate Forecast: Chinese Data to Dictate Movement?

Looking ahead, Chinese industrial production data and retail sales may influence the Australian Dollar the beginning of next week, impacting the Pound Australian Dollar exchange rate in addition to other AUD rates.

Industrial production is expected to have grown in April so far, by 0.7% – a marginal amount considering last month’s 5% increase, but an increase nonetheless.

Retail sales, on the other hand, are forecast to have fallen by 6% on an annualised basis – such a tumble could dent ‘Aussie’ trading sentiment, buoying GBP/AUD.

Olivia Evershed

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