Pound Australian Dollar Exchange Rate Falls as UK Headwinds are Compounded
(Updated 15:45, 21/07/2022) The Pound Australian Dollar (GBP/AUD) exchange rate weakened this afternoon as Sterling failed to attract significant support while easing risk-off headwinds allowed the ‘Aussie’ to climb against its peers.
Following on from earlier concerns over the UK’s record-high government borrowing, the cost-of-living crisis came into focus once again, with charities speaking out against ‘inadequate’ support measures brought in by the government.
Child poverty campaigners accused the government of ‘abandoning’ struggling families as it announced a support package including free theatre tickets and supermarket discounts; Imran Hussain, director of policy and campaigns at Action for Children said:
‘The scale of the problem needs urgent government action and a recognition that families are so exposed today because of repeated cuts to financial help available to the low paid and those with children.
The next prime minister needs to address the startling failure to provide targeted support to children living in low-income families.’
Original article continues below:
GBP/AUD Exchange Rate Wavers as Market Mood Sours
The Pound Australian Dollar (GBP/AUD) exchange rate is trading narrowly today as weakening risk appetite draws support away from both currencies. The Pound (GBP) is also affected by downbeat sentiment as government borrowing prints above expectations.
At the time of writing, GBP/AUD is trading at A$1.7373, virtually unchanged from today’s opening levels.
Pound (GBP) Weakens as Debt Interest Costs Rocket
The Pound is struggling against its peers this morning as the UK’s public finance figures paint a dire picture of the country’s economic situation.
As Hoa Duong, economist at PwC observes:
‘Today’s data shows June adding a further £23bn to the current government deficit, the highest level in 14 months and almost twice the amount recorded in May.
This means the UK continues to spend significantly more money than it received in taxes and other income, leading to an estimated borrowing of around 12.4% of GDP.’
The data highlights the current predicament facing the chancellor of the exchequer, Nadhim Zahawi: while tax cuts could ease business cost pressure and encourage growth, this could push up inflation and exacerbate the cost-of-living crisis.
Inflation is already at a 40-year high, as exemplified by yesterday’s UK CPI release. Consequently, the Bank of England (BoE) is also facing a difficult decision.
The bank’s Monetary Policy Committee (MPC) has raised interest rates at its last five meetings, meaning the current interest rate stands at 1.25%. A sixth increase is considered a certainty for early August, although opinion is divided over whether the BoE will opt for a quarter or half-point increase.
Australian Dollar (AUD) Weakens Overall Amid Cautious Market Mood
The Australian Dollar (AUD) has fallen against several peers so far today as risk appetite remains low. Investors are trading bearishly ahead of the European Central Bank (ECB)’s interest rate decision this afternoon.
Adding to AUD downside is a lack of significant Australian data. Tailwinds relating to hawkish comments from the Reserve Bank of Australia have since worn off – Governor Philip Lowe reiterated yesterday that the central bank intends to continue hiking interest rates in the coming months.
A note of caution in his tone may have helped to cap upside support; Lowe warned that Australians would need to brace for short-term pain as higher interest rates would mean more expensive loan repayments.
‘Just think of the alternative,’ said Lowe, ‘if we don’t have higher interest rates, then we’re going to have higher inflation persist, eventually that will have to be addressed.’
Possibly lending some support to the ‘Aussie’ is a rise in Australia’s key commodity prices. Both coal and iron ore are trending up, the latter supported by moves from Chinese regulators to urge banks to support real estate projects.
GBP/AUD Exchange Rate Forecast: PMI Data, UK Retail Sales to Inform Movement?
Looking ahead, tomorrow’s docket is full of trading stimuli for the Pound Australian Dollar exchange rate. Fresh PMI data for both the Pound and AUD is expected to reveal a slowing in manufacturing and service-sector activity across the board, while UK retail data is forecast to show a further dip in June’s sales.
If the combined UK data prints negatively, GBP is likely to fall against the ‘Aussie’ – although if AU data likewise weakens, GBP/AUD may trade in a mixed range.
In addition, risk sentiment may also affect trading: if today’s interest rate decision from the European Central Bank meets hawkish expectations, market mood may be elevated, buoying the risk-averse Australian Dollar.