Pound Australian Dollar (GBP/AUD) Exchange Rate Wavers on UK Credit Downgrade and AU Trade Data
The Pound Australian Dollar (GBP/AUD) exchange rate is trading in a narrow range today amid a tepid market mood and downbeat economic news for both currencies.
At the time of writing, GBP/AUD is trading at around AU$1.7418, relatively unchanged from its overnight levels.
Pound (GBP) Pressured after Credit Outlook Downgrade
The Pound (GBP) is subdued today as markets remain concerned about the UK economy.
Last night, Fitch Ratings downgraded the UK’s credit outlook from stable to negative in the wake of the government’s ill-received mini-budget.
In a commentary accompanying the downgrade, Fitch said:
‘The large fiscal stimulus, announced without compensatory measures or an independent evaluation of the macroeconomic and public finances’ impact, and the inconsistency between fiscal and monetary policy stance given strong inflationary pressures, have in Fitch’s view, negatively impacted financial markets’ confidence and the credibility of the policy framework, a key long-standing rating strength…
‘Although the government reversed the elimination of the 45p top rate tax… the reportedly negative impact of the tax package, and related financial market volatility, on public opinion and the government’s weakened political capital could further undermine the credibility of and support for the government’s fiscal strategy.’
The outlook revision came less than a week after a similar move from Standard & Poor’s, another leading ratings agency.
This downbeat development seems to be weighing on Sterling this morning. However, GBP is so far managing to hold its own against a weakening Australian Dollar (AUD).
Australian Dollar (AUD) Muted following Trade Data Miss
The ‘Aussie’ Dollar’s weakness comes following some disappointing Australian trade data overnight.
The country’s trade surplus narrowed in August, missing expectations of a widening trade balance. International trade is important for the Australian economy, so this data miss weighed on AUD exchange rates.
In addition, a souring market mood is putting some pressure on the risk-sensitive ‘Aussie’. After a risk-on rally yesterday evening, the market mood shifted overnight. During today’s European session, risk appetite is rather muted, leaving AUD to trade in a narrow range.
GBP/AUD Exchange Rate Forecast: UK Worries to Weigh on the Pound?
Looking ahead, risk appetite and domestic UK news could drive the GBP/AUD exchange rate through the remainder of today’s session.
Any new developments in the UK’s ongoing fiscal and political troubles may prompt movement in Pound Sterling. If things worsen, GBP may drop. But if the government can assuage market fears then the UK currency may firm.
Meanwhile, any shifts in market mood will likely prompt movement in the Pound ‘Aussie’ pair. If sentiment sours, the riskier Australian Dollar could stumble.
Overnight we have the Reserve Bank of Australia’s (RBA) latest financial stability review. The RBA opted for a smaller-than-expected interest rate rise at its last policy decision, but cited the deteriorating global economic outlook for the dovish move rather than weakness in Australia’s domestic economy.
Australia seems to have fared well despite inflationary pressures and an aggressive tightening of monetary policy. If the RBA’s financial stability review confirms this apparent strength, AUD could climb. However, if the central bank expresses concern about potential risks to financial markets, the ‘Aussie’ may slip.