Pound Australian Dollar Exchange Rate Bounces as GBP Strengthens
(Updated 16:30, 30/06/2022) The Pound Australian Dollar (GBP/AUD) exchange rate jumped this afternoon as Sterling unexpectedly rebounded against its peers, despite headwinds from falling real incomes and recessionary fears.
While the chance of a recession in America may be easing as the Federal Reserve’s preferred measure of inflation prints below expectations, recessionary fears are persistent in other global economies: the UK especially, as inflation in Britain hit 9.1% in Q1 2022.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, says:
‘A sense of foreboding is again gripping financial markets, with anxiety rising that by attacking inflation, central banks risk severely weakening economies.’
Furthermore, ONS data charting a continuous fall in real incomes suggests further unrest from employees feeling the squeeze. More strikes are in the pipelines for UK rail workers as well as those in other sectors.
Yet Sterling appears to be receiving support from a modest improvement in market sentiment and downside in several peers.
Original article continues below:
GBP/AUD Exchange Rate Levels as UK GDP Meets Estimates
The Pound Australian Dollar (GBP/AUD) exchange rate is trading sideways this morning as UK GDP reveals that the UK economy expanded in Q1 2022. Real incomes continued to fall, however, capping tailwinds; meanwhile, weak commodity prices limit Australian Dollar (AUD) gains.
At the time of writing, GBP/AUD is trading at A$1.7622, virtually unchanged from today’s opening levels.
Pound (GBP) Trends Up Overall on Finalised GDP Report
The Pound (GBP) is climbing against the majority of its peers today, buoyed by confirmation from the Office for National Statistics (ONS) that the UK economy expanded in Q1.
Darren Morgan, director of economic statistics at the ONS, said:
‘Our latest estimate for economic growth in the first quarter is unrevised as a whole, showing the UK continued to recover from the pandemic.’
Sterling upside is tempered, however, by real incomes – which fell for the fourth consecutive quarter. This is the longest run of declines since records began in 1955.
Although nominal household income grew by 1.5% in Q1, it was offset by quarterly household inflation of 1.7%, the ONS reports.
Paul Dales of Capital Economics worries that the drop in incomes will leave people with less protection from economic problems ahead:
‘Households [have] a slightly smaller buffer than we expected to cope with the much bigger falls in real incomes that are going to hit in Q2 and Q3 due to the surge in inflation.
Although GDP and consumer spending won’t fall as far as real incomes, it’s pretty clear the economy is going to be very weak for a while and a recession is a real risk.’
Australian Dollar (AUD) Gains Capped by Weaker Equity and Metal Prices
The Australian Dollar has a strong outlook ahead, according to analysts at Westpac. Markets are pricing in a 50bps rate hike next week and Westpac expects a consecutive 50bps hike in August, with upbeat commentary from the Reserve Bank of Australia (RBA).
‘[Next week’s] statement should include a positive view on the economy, unlike legitimate recession talk in the likes of the US and UK,’ say analysts.
Inflation in Australia is well behind that of other countries, having printed at 5.1% most recently, compared with 9.1% in the UK, 8.1% in the Euro area and 8.6% in the US. This puts RBA policymakers in a more comfortable position when tightening monetary policy, as price pressures upon the consumer are less.
Nevertheless, ‘Aussie’ gains are capped today by subdued equities and metal prices. Australia was the world’s biggest exporter of iron ore in 2020 and the Australian Dollar continues to experience headwinds when the commodity lowers in value.
Later this evening, the Ai Group manufacturing index may provide trading impetus for AUD; growth in factory activity is expected to have slowed again in June, albeit by far less than last month.
GBP/AUD Exchange Rate Forecast: AU Data to Drive Movement?
Australia’s Ai group data this evening may have some effect on GBP/AUD, inspiring possible upside if the release disappoints.
Elsewhere, trading sentiment could affect trading: market mood is bearish today, sapping demand for perceived-riskier currencies. If risk aversion persists, ‘Aussie’ downside may lend additional support to the Pound Australian Dollar exchange rate.