Pound Australian Dollar Weakens on Further GBP Downside
(Updated 16:20, 14/06/2022) The Pound Australian Dollar (GBP/AUD) exchange rate revisited Sunday’s lows this afternoon, as economic and contextual headwinds weighed upon the Pound.
GBP investors turned more bearish throughout the day as the implications of April’s jobs data sank in: despite continuing fears that increasing wages could inspire a ‘wage-price spiral’, union representatives insisted that a widespread pay rise was necessary.
Frances O’Grady, General Secretary of the TUC, commented that ‘millions of workers are being forced to choose between paying their bills or feeding their families’, while GMB General Secretary Gary Smith asserted:
‘This Prime Minister – and the boss of the Bank of England – are happy to tell workers to show restraint; that they shouldn’t ask for a proper pay rise… It’s out of touch and tin-eared. They just don’t understand what people are going through.’
Furthermore, fears of a trade war between the EU and UK lingered following the release of the UK’s ‘Northern Ireland Protocol bill’, which seeks to override parts of the protocol.
Naeem Aslam of Avatrade observed:
‘It took the UK and EU over two years to hammer out the details of the Brexit deal in relation to Northern Ireland, and the fact that UK lawmakers have positioned the country for another self-inflicting injury would mean more trouble for the UK’s economy.’
Original article continues below:
GBP/AUD Exchange Rate Spikes Following Volatile Morning
The Pound Australian Dollar (GBP/AUD) exchange rate is trading erratically so far today, as both the Pound (GBP) and the Australian Dollar (AUD) face significant headwinds. Sterling is subdued by growing unemployment while the ‘Aussie’ wavers on fears of a recession.
At the time of writing, GBP/AUD is trading at A$1.7521, up 0.2% from today’s opening levels.
Pound (GBP) Faces Downside as Jobs Report Disappoints
The Pound is falling against several of its peers today as weaker-than-expected UK jobs data subdues Sterling sentiment.
Unemployment rose to 3.8% in the three months to April 2022, up from 3.7% in the quarter to March – a potential sign that the UK’s jobs recovery is softening. This is not for a lack of vacancies: job vacancies in March rose to a new record of 1,300,000, although they are increasing at a slower pace than previously.
Meanwhile, basic pay lags behind rising prices, climbing by 4.2% in the February-April quarter while inflation hit 9% in May. Total pay, including bonuses, grew by 6.8%: meaning in real terms it grew by 0.4% but shrank by 2.2% on the year with bonuses excluded.
Tony Wilson, the director of the Institute for Employment Studies, says:
‘This is really grim news on pay and is only likely to get worse… Despite the tightest labour market on record, nominal pay is broadly flat meaning that rocketing inflation is leading to the largest cuts in real pay in at least two decades.’
Elsewhere, opinions are mixed. Chancellor Rishi Sunak commented that the latest figures show the UK’s job market ‘remains robust’; on the other hand, Labour’s Jonathan Ashworth accused ministers of showing complacency about the UK’s levels of economic inactivity.
Given an overly downbeat analysis of the data, GBP is likely to remain muted against its rivals in the near-term.
Australian Dollar (AUD) Subdued by Fears of Recession
The Australian Dollar is weakening against its peers today following a worse-than-expected business confidence release. NAB’s monthly index fell to 6 in May – a four-month low and well below the expected increase to 12.
Also denting the ‘Aussie’ is downbeat sentiment regarding central banks’ monetary policy tightening. Following early optimism in the currency markets, investors worried that aggressive tightening measures could pose challenges to the global economy: ordinarily, a hawkish central bank would inspire upside.
The Reserve Bank of Australia (RBA) in particular is talking of raising interest rates to temper high levels of inflation. Governor Philip Lowe remarked that Australians should be ready for significant interest rate hikes in the balance of this year, in the first speech he’s given since June’s 50bps hike.
‘The RBA will do what’s necessary to get inflation back to between 2 to 3 percent,’ said Lowe; ‘It’s unclear at the moment how far interest rates will need to go up to get that [but it’s] reasonable to think interest rates [could] reach about 2.5% at some point.’
Analysts at Australia’s CBA Bank are less than optimistic about the RBA’s forward guidance. According to Bloomberg, Australia’s largest lender expects aggressive monetary policy tightening to weigh upon the economy, forcing the Reserve Bank to reverse course and cut interest rates in the second half of 2023.
Pound Australian Dollar Exchange Rate Forecast: Consumer Confidence to Affect Trading?
Looking ahead, tomorrow’s Westpac data may influence the Pound Australian Dollar exchange rate.
If consumer confidence fell in June by 0.5% as expected, AUD could incur more losses against its peers.
Furthermore, if industrial production and retail sales in China tumble, the Australian Dollar may experience headwinds on account of the two countries’ strong trading relationship.