GBP/AUD Weakens Below Opening Levels
(Updated 17:00, 13/07/2022) The Pound Australian Dollar (GBP/AUD) exchange rate reversed direction midway through the European afternoon session to conclude a day of erratic trading below today’s opening levels.
Risk-off headwinds alternately depressed both the Pound and the ‘Aussie’: initially, Sterling downside was capped by GDP data but gains were limited as analysts warned that next month’s release will likely yield a contraction.
Subsequently, AUD tailwinds were limited by above-forecast US inflation data, which inspired a fresh wave of risk-off sentiment on increased fears of a recession.
Amid such conditions, GBP/AUD struggled to make any decisive moves but consistent downbeat analyses from UK economists ultimately cemented Sterling losses, with members of the think tank NIESR commenting that it was ‘touch and go’ whether the economy enters a recession in the second quarter.
Original article continues below:
Pound Australian Dollar Exchange Rate Spikes then Falls on UK GDP Release
The Pound Australian Dollar (GBP/AUD) exchange rate is weakening following a brief jump this morning following the publication of the UK’s GDP result. Meanwhile, the Australian Dollar (AUD) is trending up against its peers despite subdued market sentiment.
At the time of writing, GBP/AUD is trading at A$1.7530, down 0.4% from today’s opening levels.
Pound (GBP) Traders Respond to Unexpected Economic Growth
The Pound (GBP) is trading in a mixed range against its peers this morning in the aftermath of the UK’s GDP release, which revealed that the UK economy expanded unexpectedly in May 2022.
May’s GDP data was expected to reveal stagnation as inflationary pressures weigh upon the economy – but instead it expanded by 0.5%. This marks the biggest increase since January; some economists consider it a reflection of the extra working day because of the Jubilee bank holiday being moved to June.
Industrial production increased by 1.4% rather than contracting as expected, alongside manufacturing activity. Services output also grew in May by 0.4%, led by human health and social work activities – which offset the scaling down of the Covid-19 test and trace and vaccination programmes.
Darren Morgan, director of economic statistics at the ONS, confirmed:
‘Health was the biggest driver with many more peoples seeing GPs, despite test and trace and the vaccination programmes winding down.’
Sterling gains on account of the data may be short-lived, however, as analysts warn that June’s GDP will likely fall due to the two bank holidays, potentially resulting in a contraction in Q2 GDP growth overall.
Australian Dollar (AUD) Firms on Chinese Trade Balance
The Australian Dollar is attracting support so far today, despite downbeat market sentiment. US stock index futures are trading flat as fears of a global recession continue to weigh upon morale.
Buoying the ‘Aussie’ may be China’s June trade balance, which revealed a better-than-expected increase in the country’s trade surplus. The release printed at $97.94bn rather than the $75.7bn expected, which would have signalled a fall from May’s figure.
The General Administration of Customs, publisher of the data, reported that exports surged in June and imports remained subdued. Specifically, exports grew 17.9% year-on-year, the most in five months, as logistic issues eased with Covid control measures being lifted.
Julian Evans-Pritchard, senior China economist at Capital Economics, observes:
‘This jump reflects the easing of supply chain disruptions coming out of lockdowns and, most importantly, fewer bottlenecks at ports.
Although total container throughput at Chinese ports was little changed last month, the recent weakness of domestic shipping demand has freed up more port capacity for foreign trade.’
Dampening support somewhat are forecasts that the domestic economy may experience turbulence ahead. Not only are Covid infections continuing to prompt lockdowns in parts of the country, but a slowdown in imports and uncertain global backdrop suggest possible headwinds.
Pound Australian Dollar Exchange Rate Forecast: Australian Employment Data to Inspire Movement?
Looking ahead, the Pound Australian Dollar exchange rate may dip further still tomorrow, as Australia is forecast to reveal a marginal decrease in unemployment, alongside an increase in hires. The data is expected to reveal that 30,000 new jobs were added to the economy in June 2022.
Potentially capping ‘Aussie’ gains, however, is potential risk aversion. If market mood remains downbeat tomorrow, AUD could face headwinds against its safe-haven peers.
The Pound is likely to trade on external factors, given a lack of significant data. If political headwinds increase alongside recession fears, Sterling upside may be limited.