Pound Australian Dollar (GBP/AUD) Exchange Rate Rallies as Chinese Economy Slows
The Pound Australian Dollar (GBP/AUD) exchange rate is rising this morning, as Chinese economic slowdown weighs on the ‘Aussie’.
At the time of writing, GBP/AUD was trading at around AU$1.8106, an increase of roughly 0.3% from the morning’s opening rates.
Australian Dollar (AUD) Weakens as Chinese Economy Continues to Slow
The Australian Dollar (AUD) is weakening this morning due to its nature as a Chinese proxy-currency. The Chinese economy is continuing to show signs of sluggish momentum, with inflation remaining very low.
This morning saw the release of Chinese CPI and PPI data, with CPI falling from 2.1% to 1.6% and PPI remaining at -1.3%. As such, the economy is dangerously close to entering a phase of deflation, as the country’s former zero-Covid policy continues to impact the economy.
While optimism has supported China as it begins the path to ‘living with Covid’, the economy is continuing to struggle. Inflation also remains an uncertainty, with analysts suggesting the reopening may bring challenges.
Bruce Pang, Chief Economist at Jones Lang Lasalle stated:
‘The potential reopening could bring inflationary challenges to China, with a surge in demand, especially the accelerating household consumption, and short-term disruption to labour supply, production and supply chains amid an inevitable exit wave of new cases.’
As such, the Chinese proxy-currency ‘Aussie’ is seeing weak trade, with investors holding back while the Chinese future remains unclear.
Pound (GBP) Edges Higher as UK Inflation Expectations Rise
The Pound (GBP) is firming this morning, as UK consumer inflation expectations edged higher. The medium-term expectations rose to 3.4% from 3.2%, the highest reading since November 2013.
With this in mind, investors are growing hopeful for a higher interest rate hike from the Bank of England (BoE). While the hike is currently priced in at 50bps, the BoE has consistently reasserted it’s desire to prevent high inflation from bedding in.
With this in mind, it seems possible to investors that a higher hike could be on the cards in the future, prompting investors to support Sterling.
Elsewhere, Chancellor Jeremy Hunt announced a package of financial sector reforms this morning. Optimism around the reforms’ potential to spark economic growth could further serve to boost Sterling against itss peers.
Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: UK GDP to Boost Sterling?
Looking ahead for the Pound, Monday brings the latest GDP data for October. A recovery is expected from -0.6% to 0.4%, which could bring cheer to investors by hinting at a milder recession. Similarly, the UK’s trade deficit is forecast to narrow, which could further boost GBP.
For the Australian Dollar, consumer and business confidence data is due to print on Monday. With an increase in optimism expected for both, the ‘Aussie’ may be lifted.
Elsewhere, further developments in China may boost AUD as the country continues to shift away from its zero-Covid policy. With lockdowns becoming a thing of the past, the Chinese economy could begin to recover, lending support to the Chinese proxy-currency.