Pound Australian Dollar (GBP/AUD) Exchange Rate Extends Downside amid Economic and Political Angst
(Updated 15:15, 21/10/22) The Pound Australian Dollar (GBP/AUD) exchange rate continued to tumbled today as economic and political instability rocks the UK.
The Pound (GBP) first slipped this morning, after the latest UK retail sales data revealed a 1.4% contraction last month.
In addition, GBP investors are concerned about the uncertainty in British politics. Following Liz Truss’s resignation yesterday, the Tories are holding their second leadership election this year.
Markets seem concerned that whoever wins will struggle to unite a divided Conservative Party and lead the country in a time of economic crisis. Former Chancellor Rishi Sunak would likely be the most stabilising choice for PM, however the ousted PM Boris Johnson looks increasingly likely to make it through to the second round.
Johnson has his admirers and his critics, both within the Tory party and among the electorate, so ti may be hard for him to unite the party and end the infighting.
Tory source reckons around a dozen Conservative MPs will resign the whip if Boris Johnson wins the leadership race
— Rachel Wearmouth (@REWearmouth) October 21, 2022
Johnson is also facing a Privileges Committee investigation into whether he knowingly lied to Parliament. As a result, markets are fearful that Johnson’s return to Number 10 could bring further instability.
Original article continues below:
Pound Australian Dollar (GBP/AUD) Exchange Rate Declines as UK Woes Grow
The Pound Australian Dollar (GBP/AUD) exchange rate slipped this morning as UK retail sales revealed a further contraction, raising concerns about the UK economy at a critical juncture.
At the time of writing, GBP/AUD is trading at A$1.7817, down almost 0.4% on the day.
Pound (GBP) Falls as UK Sales Contract
The Pound (GBP) dropped this morning after the latest retail sales data for the UK came in far worse than expected.
Domestic sales in the UK contracted by a whopping 1.4% in September, far worse than the expected 0.5% contraction. The slump in sales follows a downwardly revised 1.7% decline in the previous month.
Today’s data is a stark reminder of the trouble the UK economy is in. With rising interest rates and 40-year-high inflation, people are struggling with the cost of living. This in turn is denting consumer spending, thereby slowing the economy.
Meanwhile, the Conservative Party is about to embark on another leadership contest to pick its third Prime Minister this year, after Liz Truss resigned yesterday.
This political uncertainty, along with the financial instability following Truss’s mini-budget last month, is causing significant volatility in Sterling.
Australian Dollar (AUD) Limited amid Risk-Off Mood
Meanwhile, the risk-sensitive Australian Dollar (AUD) is finding its gains capped as a bearish mood sweeps markets.
Market sentiment has been tumultuous in recent days. Today, investors are avoiding risk and opting for safer assets, as evident in the equity markets.
The downbeat mood comes as the Russia-Ukraine war rages on. The conflict seemingly entered a new stage in early October, dashing hopes that there might soon be an end to the crisis.
Russia has been using kamikaze drones to destroy energy infrastructure, killing civilians and causing blackouts and power cuts ahead of the bitter Ukrainian winter. These drones have allegedly been supplied by Iran, with markets anxious of rising Iran-US tensions.
With this damaging, destabilising war looking far from over, markets are gloomy today, which is weighing on the riskier ‘Aussie’. Still, AUD is gaining ground against the weaker Pound.
GBP/AUD Exchange Rate Forecast: UK Political Chaos to Continue?
Looking ahead, we may see the volatility that has characterised the Pound in recent weeks continue. As a result, GBP/AUD could trade in a wide range.
UK political developments will be a key driver of GBP movement. Conservative MPs are in the process of nominating their preferred candidates for Prime Minister. Previous leadership hopefuls Rishi Sunak and Peny Mordaunt are in the top three, alongside former PM Boris Johnson, who was deposed by the parliamentary party earlier this year.
The world is watching to see whether the Tories can find a replacement PM in an orderly way, or whether the recent chaos will continue. More political uncertainty or drama will likely hurt Sterling.
As for the ‘Aussie’, risk appetite could remain the driving factor.