Pound Australian Dollar Exchange Rate Ticks Up on GBP Optimism
(Updated 16:40, 20/05/2022) The Pound Australian Dollar (GBP/AUD) exchange rate rebounded following this morning’s slump, as Pound investors were encouraged by comments from Bank of England (BoE) chief economist, Huw Pill.
Formerly dovish comments from the bank had stipulated that it would not act aggressively to curb inflation, in contrast with the Federal Reserve, as to do so would increase the risk of a recession. Hiking interest while economic growth remained slow could lead to a weaker economy, particularly if consumer spending is reduced and unemployment high.
However, data from earlier this week revealed that the UK labour market is tight; and today’s retail sales confirmed that spending has been more resilient than expected in recent weeks. Off the back of these releases, Huw Pill signaled that interest rates need to rise further.
Remarking that the discomfort of high inflation is nothing compared to the challenges facing poorer families most hit by the cost-of-living-crisis, Pill said:
‘With inflation forecast to rise into double digits following the very sharp rise in international energy and goods prices, this is biggest challenge the MPC has faced over the past quarter of a century.
It is in these testing times that the anchor represented by the 2% inflation target comes to the fore… we are able to take the sometimes tough decisions to bring inflation back to 2% and keep it there sustainably.
It is that commitment that has led me to support a tightening of monetary policy since I joined the Committee last September, and to signal today that this tightening still has further to run..’
Original article continues below:
GBP/AUD Exchange Rate Muted as Investors Digest Retail Sales
The Pound Australian Dollar (GBP/AUD) exchange rate is sliding this morning as Pound (GBP) investors consider an unexpected rise in UK retail sales. Sales rose by 1.4% in April rather than falling 0.2% as forecast.
At the time of writing, GBP/AUD is trading at A$1.7658, down 0.2% from today’s opening levels.
Pound (GBP) Attempts Rebound on Upbeat Sales Data
The Pound has extended its weekly gains against several peers this morning, although it continues to face risk-off downside on fears of a global recession.
In the headlines this morning are the UK’s retail sales figures, which reveal that sales in April rose rather than contracting as expected. The recovery was driven by a rise in food store sales volumes, as people spent more on alcohol and tobacco.
Such spending patterns may reflect consumers reduced social activity outside the home, given the cost-of-living-crisis; instead, shoppers are stocking up for staying in.
A jump in clothes and fuel sales also supported the recovery, although the broader picture is still weak.
Nevertheless, today’s release may encourage the Bank of England (BoE) to hike interest rates at a faster pace, as the suspected fall in sales was one of the factors advising a more cautious approach.
Huw Pill, the BoE’s chief economist, states:
‘This is biggest challenge the MPC has faced over the past quarter of a century. [The bank is] able to take the sometimes tough decisions to bring inflation back to 2% and keep it there sustainably… It is that commitment that [leads me] to signal today that this tightening still has further to run.’
Australian Dollar (AUD) Enjoys Upside despite Election Uncertainty
The Australian Dollar (AUD) is enjoying widespread support so far today in spite of uncertainty surrounding the election weekend.
The chances of a hung parliament are increasingly high, as the Coalition risks losing its majority if it drops just one seat. Meanwhile, Labor must gain seven seats in order to take the helm: if the Coalition drops seats and Labor fails to win seven, neither major party will be able to form a government on its own.
Lending AUD upside, however, is an improvement in global risk sentiment. The People’s Bank of China (PBOC) has cut its five-year loan prime rate by 15 basis points to counter an economic slowdown, extending some support to the China-proxy ‘Aussie’.
Iris Pang of ING Bank explains:
‘As long-term loans are usually linked to the 5-year LPR, infrastructure financing should benefit from this rate cut… [The] cut is not designed to help property developers ease their financing needs – instead, it is aimed at helping individuals.’
Also continuing to lend support to the currency are hawkish signals from the Reserve Bank of Australia (RBA), alongside yesterday’s upbeat employment data. Capping gains, however, are gloomy economic forecasts and ongoing conflict in Ukraine.
Pound Australian Dollar Exchange Rate Forecast: AU Elections to Drive Movement?
Looking ahead, Australia’s elections are likely to provide the most immediate stimulus for movement in the Pound Australian Dollar exchange rate. Nearing results day, increasing volatility could sap AUD demand; following the event, a more tangible outlook could buoy the currency.
Subsequently, a speech from the RBA’s Christopher Kent could influence the ‘Aussie’, lending potential tailwinds if Kent strikes a hawkish tone.