Pound Australian Dollar (GBP/AUD) Weekly Forecast: Exchange Rate Weakens as Chinese Tailwinds Buoy Australian Dollar

The Pound Australian Dollar (GBP/AUD) exchange rate dropped last week to a 13-day low, as the Bank of England (BoE) gave a dovish speech. This week, GBP/AUD resumes the downtrend after a brief rebound, driven by strength in the Australian Dollar.

What’s Been Happening: UK PMIs, Central Bank Dynamics Direct Movement

The Pound (GBP) trended up against the ‘Aussie’ at the beginning of the week, despite weak UK PMIs. Finalised manufacturing data revealed that factory growth declined in July; subsequently, the UK’s services PMI came in below preliminary estimates.

Capping AUD gains, in the meantime, was a dovish commentary from the Reserve Bank of Australia (RBA). The RBA hiked interest by 50bps rate hike but did not refer to ‘extraordinary stimulus’ in its accompanying speech.

Midweek, geopolitical tensions between China and the US dampened support for both currencies, following US House of Representatives speaker Nancy Pelosi’s unsanctioned visit to Taiwan.

On Thursday, Sterling sentiment plummeted following a downbeat forecast from the Bank of England (BoE). While the UK’s central bank hiked interest rates by 0.5% as expected, it also predicted a recession in Q4 2022.

At the end of the week, GBP/AUD rebounded on further dovish rhetoric from the RBA, but dipped once more over the weekend as upbeat Chinese data buoyed AUD.

Three Things to Watch Out for This Week

  1. UK GDP
    The UK economy is thought to have contracted in Q2 2022, by 0.2%. If the data prints as expected, Sterling could tumble.
  2. AU confidence data
    Both Australian consumer and business confidence are expected to reveal an improvement in sentiment, likely supporting the Australian Dollar.
  3. Chinese inflation
    If inflation in China advances closer to the country’s 3% target, as forecast, Chinese tailwinds could boost AUD.

Pound Australian Dollar Forecast

Other factors which may influence the Pound Australian Dollar exchange rate include risk sentiment and Australian commodity prices.

If US-China relations remain in focus, risk appetite may weaken – however, China’s greater-than-expected trade surplus could support risk-on sentiment, indicating a rapid economic recovery.

Olivia Evershed

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