Pound Australian Dollar Exchange Rate Spikes on GBP Tailwinds
(Updated 16:55, 09/06/2022) The Pound Australian Dollar (GBP/AUD) catapulted up this afternoon as GBP enjoyed tailwinds following a speech from UK Prime Minister Boris Johnson. Also buoying Sterling was news that UK consumer confidence rose in late May / early June.
In his speech, Boris Johnson acknowledged that the burden of taxation is currently very high, calling it ‘an aberration’ caused in part by Covid; to bring taxes down, he said, the government must introduce supply side reforms. His comments were welcomed by reporters, one of whom observed:
‘Boris Johnson’s keynote policy speeches haven’t always been a triumph. At times (particularly when Johnson started banging on about olives and bananas) this one started to sound rather peculiar. But in the end it covered a lot of ground.’
Meanwhile, economists cheered confidence data that suggested measures announced by UK government last month had reassured consumers. Reuters’ Andy Bruce cited the UK Refinitiv/IPSOS Primary Consumer Sentiment Index:
Tentative sign that measures announced by UK government last month have put a floor under falling consumer confidence?
UK Refinitiv/IPSOS Primary Consumer Sentiment Index rises in June 👇 pic.twitter.com/IR0xbomcYi
— Andy Bruce (@BruceReuters) June 9, 2022
Original article continues below:
GBP/AUD Exchange Rate Levels as Risk Appetite Remains Low
The Pound Australian Dollar (GBP/AUD) exchange rate is trending sideways so far today, up from yesterday’s lows but still subdued as risk aversion limits support for both currencies.
China’s positive trade balance lends some support to the Australian Dollar (AUD) on account of the countries’ close trading relationship.
At the time of writing, GBP/AUD is trading at A$1.7440, virtually unchanged from today’s opening levels.
Australian Dollar (AUD) Benefits from Upbeat Chinese Data
The Australian Dollar is trading in a mixed range against its peers as widespread risk aversion caps support for the currency while a positive trade balance from China lends some upside.
China’s trade surplus grew to $78.76bn in May 2022, up from $51.12bn in April and above expectations of a $6.88bn rise. This was the largest figure since the start of the year and comes as authorities relaxed Covid-19 control measures in Shanghai and Beijing.
Meanwhile, markets’ cautious mood is illustrated by US stock index futures, which trade with small losses, alongside moderate strength in safe-haven assets such as the US Dollar (USD) and Japanese Yen (JPY).
Notably, investors are hesitant of placing bullish bets ahead of the European Central Bank (ECB)’s interest rate decision later today. The central bank is widely expected to announce an end to its Asset Purchase Programme (APP) and confirm a rate hike in July.
AUD may be further subdued on account of weak jobs prospects. While the Reserve Bank of Australia (RBA)’s recent 50bps rate hike lent the ‘Aussie’ some support initially, its impact will likely dent the employment generation ability of the Australian economy.
Pound (GBP) Faces Headwinds as Political Jitters Persist
The Pound is slumping against its peers this morning, given the combined effect of risk-off trading and ongoing UK political jitters.
Markets remain concerned that more aggressive moves by major central banks to constrain surging inflation could pose challenges to global economic growth. The Organisation for Economic Co-operation and Development (OECD) has predicted that of all developed nations excluding Russia, the UK will be the worst-performing economy in 2023.
Elsewhere, UK Prime Minister Boris Johnson faces persistent doubts about his leadership capabilities despite winning a vote of no confidence earlier this week.
As various public figureheads raised the suggestion of the PM’s resignation, Johnson responded that ‘absolutely nothing and no one’ would make him quit his position or ‘get on [with] delivering for the British people.’
Criticism of the Prime Minister has expanded beyond the ‘Partygate’ saga and is now focused upon his handling of the NHS. In a scathing attack at the House of Commons, Labour leader Sir Keir Starmer told Johnson:
‘Pretending no rules were broken didn’t work. Pretending the economy is booming didn’t work. And pretending to build 40 new hospitals won’t work either.’
Pound Australian Dollar Exchange Rate Forecast: Chinese Inflation to Buoy Australian Dollar?
Looking ahead, the release of China’s inflation data may influence AUD trading tomorrow, lending possible support to the ‘Aussie’ if it increases from 2.1% to 2.2%, closer to the People’s Bank of China (PBoC)’s target rate of 3%.
Meanwhile, GBP/AUD could also be affected by overall market sentiment. If US inflation prints as expected at 8.3%, the same as in April, aggressive rate hike bets from the Fed may dwindle, easing fears of a recession and buoying market mood.