The Pound Australian Dollar (GBP/AUD) exchange rate plummeted at the end of last week as the UK Chancellor’s mini-budget inspired fears that government borrowing would spiral out of control.
Into this week, the Pound (GBP) is recovering some of its losses against the Australian Dollar (AUD) as risk-off sentiment caps gains for the latter.
What’s Been Happening: GBP/AUD Hits 9-Year Low on Sterling Headwinds
Quiet trading conditions prevailed last Monday as a bank holiday was observed in the UK to mark the funeral of Queen Elizabeth II.
Into Tuesday, GBP/AUD ticked up briefly as the release of the Reserve Bank of Australia (RBA)’s latest meeting minutes inspired a downturn in the Antipodean currency.
Nevertheless, Sterling headwinds limited losses for the Pound Australian Dollar exchange rate as GBP investors worried over the prospect of unrestricted government borrowing.
Gains for both currencies were further limited by a risk-off mood, inspired by an aggressive speech from Russia’s Vladimir Putin.
At the end of the week, GBP/AUD fell steeply in response to a 50bps interest rate hike from the Bank of England (BoE), and subsequently, the unveiling of the UK’s mini-budget.
According to Fiona Cincotta at City Index: ‘The announcement of the largest tax cuts since 1972 to boost growth and stave off a recession that has already started, has triggered a crash in the pound and the bond market.’
Three Things to Watch Out for This Week:
- Central Bank Dynamics
The Bank of England is under scrutiny as last week’s 50bps interest rate hike disappointed bullish investors. Further dovish rhetoric could subdue GBP further.
- Australian Retail Sales
Australia’s retail sales are expected to have increased in August, potentially inspiring AUD tailwinds.
- UK GDP
Friday’s economic data will be eyed for further signs the UK is in recession. If it prints below earlier estimates, the Pound is likely to fall.
Pound Australian Dollar (GBP/AUD) Forecast
Also affecting GBP/AUD this week may be Chinese data and UK consumer credit. If manufacturing in China increased in September, AUD could enjoy a boost; if UK borrowing increased as forecast, Sterling may come under pressure.