The Pound Australian Dollar (GBP/AUD) exchange rate dropped to a 57-month low last week as Britain’s energy crisis intensified. Meanwhile, tailwinds from China buoyed the Australian Dollar (AUD) against its peers.
What’s Been Happening: Data Prints Mixed, Ofgem Raises Price Cap
At the beginning of the week GBP/AUD traded sideways on mixed PMI data. In Australia, both manufacturing and service sector activity weakened by more than expected, with the latter falling into contraction territory.
On the other hand, the UK’s services PMI fell by less than expected, although manufacturing activity contracted. Undermining Pound (GBP) tailwinds, industrial trends data from the Confederation of British Industry (CBI) printed at -7 rather than 3 as expected.
Subsequently, Sterling trended broadly lower, depressed by cost-of-living headwinds. Economists forecast inflation could hit 18% next year and on Friday, Ofgem raised the UK’s price cap to £3,549 from October.
In Australia, the ‘Aussie’ enjoyed support from upbeat Chinese data: midweek, the Chinese Cabinet introduced a $146bn stimulus package to prompt an economy recovery. While several economists suggested the measure was insufficient to boost morale, it was deemed a step in the right direction.
Three Things to Watch Out for This Week
- BoE Consumer Credit
UK consumer credit dropped as expected in July, indicating a reduction in borrowing and possibly spending. A reduction in spending is bad for the economy – GBP may fall further as investors digest the release.
- Ai Group Index
The Ai Group’s manufacturing index looks likely to reveal slowing expansion in August, possibly denting AUD.
- Chinese Data
China’s manufacturing PMI is expected to reveal a marginal uptick in growth in August, potentially buoying the Chinese Yuan (CNY) and simultaneously, the Australian Dollar.
Pound Australian Dollar Forecast
This week, fears of a UK recession are likely to drive the Pound Australian Dollar exchange rate lower, as a surge in energy prices increases pressure upon Britain’s economy.
Economists observe that hawkish rhetoric from the Bank of England (BoE) suggesting further interest rate hikes ahead has done little to reassure investors.