GBP/AUD Exchange Rate Buoyed by Improving Market Mood
(Updated 15:40, 24/06/2022) The Pound Australian Dollar exchange rate dropped this afternoon to levels last seen yesterday lunchtime, as the ‘Aussie’ enjoyed tailwinds on renewed risk appetite.
Market sentiment improved alongside equity performance despite an uncertain global outlook; the Australian Dollar in particular was bolstered by comments from Reserve Bank of Australia (RBA) Governor Philip Lowe, who said he does not expect a recession in Australia.
As the central bank have owned intentions to hike interest rates by either 25 or 50 basis points next month, investors may now be hoping for the latter: with fears of a recession reduced, the argument for moderation is diminished.
In the meantime, the Pound struggles to hang onto this morning’s gains as pressure mounts once again on UK Prime Minister Boris Johnson to surrender his premiership. Michael Howard, the former Conservative party leader, is calling for Johnson to resign, saying ‘the party and more importantly the country would be better off under new leadership.’
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Pound Australian Dollar Exchange Rate Fluctuates Following Retail Sales Release
The Pound Australian Dollar (GBP/AUD) exchange rate is trading sideways this morning following the release of the UK’s retail data for the month of May. Sales fell by less than expected, lending the Pound (GBP) support against its peers.
At the time of writing, GBP/AUD is trading at A$1.7770, virtually unchanged from today’s opening levels.
Pound (GBP) Buoyed by UK Retail Report
The Pound is rising this morning as investors are pleasantly surprised by the UK’s retail data. Sales were expected to have fallen by 0.7% in May, but instead fell by only 0.5%.
Tailwinds are tempered, however, by downbeat forecasts and warnings from economists. Experts point out the decline in spending at food stores, linked to the UK’s cost-of-living crisis.
Consultancy firm BJSS highlights that while retail sales volumes shrank, the amount spent jumped by 5% year-on-year. This illustrates the impact of inflation:
‘Amidst a further rise in inflation, poor performance of the FTSE, supply chain uncertainty and a looming recession, it seems retailers are struggling to elicit anything other than unavoidable spending’;
Whilst we would hope for an uplift, with inflation showing no sign of reducing, retailers will likely be concerned that this trend might continue throughout the entire summer season.’
Nevertheless, Nicholas Farr, assistant economist at Capital Economics, speculates that the ‘pain in store’ for the retail sector won’t stop the Bank of England (BoE) from raising interest rates.
Moreover, ING bank economist James Smith predicts that the jobs market should provide support to the economy ahead.
Australian Dollar (AUD) Weakens on Bearish Market Mood
The Australian Dollar (AUD) is trending down overall, subdued by bearish trading sentiment ahead of several mid-tier data releases in the US.
A lack of Australian data applies additional downside to the ‘Aussie’. AUD investors will likely be looking ahead to Reserve Bank of Australia (RBA) Governor Philip Lowe’s speech later today for some trading impetus.
The bank’s governor struck a slightly more dovish tone on Tuesday, saying that interest rates are likely to rise by 50bps at most in July, prompting markets to abandon forecasts of a 75bps hike. Following the RBA’s unexpected half-point rate hike two weeks ago, Lowe’s comments dampened spirits.
However, Su-Lin Ong, chief economist for Australia at the Royal Bank of Canada considers that the governor’s remarks were sensible:
‘By only referencing July, Lowe gave himself wiggle room for a supersized hike in August or later… Other global central banks are moving in at least 50s, if not more. Why should the RBA be any different?’
If Lowe strikes a more hawkish tone in today’s speech, the ‘Aussie’ may enjoy upside. It is likely, though, that the bank may want to appraise July’s second-quarter inflation data before making any bold decisions.
GBP/AUD Exchange Rate Forecast: External Factors to Drive Movement?
Aside from the RBA’s speech from Governor Philip Lowe later today, the Pound Australian Dollar exchange rate lacks any further macroeconomic events to trade upon.
It is possible that GBP/AUD may be affected by UK political developments in the absence of more significant data. In the headlines today, Prime Minister Boris Johnson lost two key seats on the same night, prompting Conservative party chair Oliver Dowden to resign.
The prospect of uncertainty for the British government ahead could inspire some volatility in Pound trading, capping Sterling gains.