Pound Australian Dollar (GBP/AUD) Exchange Rate Stumbles as UK Government Borrowing Begins to Slow
The Pound Australian Dollar (GBP/AUD) exchange rate is weakening this morning, as UK Government borrowing begins to wind down.
At the time of writing, GBP/AUD is trading at around AU$1.8186, a decline of roughly 0.2% from the morning’s opening rates.
Pound (GBP) Slides as Government Borrowing Slows
The Pound (GBP) is weakening this morning, as UK government borrowing exceeded forecasts, but showed a slowdown in investment.
The slowdown in investment demonstrated is prompting concern for investors about the UK’s economic outlook.
Alison Ring, Public Sector and Taxation Director for the Institute of Chartered Accounts (ICAEW) stated:
‘The continued slow-down in public capital investment is concerning given its importance to economic growth prospects and future tax revenues, compounded by continued disruption from industrial action.’
However, the figures are still on track to meet the Office of Budget Responsibility’s forecasts of £177 billion for 2022’s borrowing. Furthermore, a large swathe of the borrowing comes from supporting households and businesses with energy costs.
Yet, further losses for GBP are likely being cushioned by positive risk sentiment. As Sterling is an increasingly risk-sensitive currency, the upbeat market mood may be preventing GBP from falling further.
Australian Dollar (AUD) Capped by Chinese Covid Anxieties
The Australian Dollar (AUD) is being weighed down by soaring Covid cases in China this morning, countering risk-on trade.
As a Chinese proxy-currency, the ‘Aussie’ is particularly sensitive to developments in the Chinese economy. After China’s rapid exit from it’s strict zero-Covid policy, cases and deaths are continuing to spiral across the country. As such, investors are becoming increasingly concerned about the impact this will have on the country’s economy.
For instance, the retail and financial services sectors in China have been struck by a shortage of staff due to Covid. Noah Fraser, the Managing Director at the Canada-China Business Council explained this further, stating:
‘The retail and client facing sectors are in deep trouble. Obviously, they have limited staff that are available to work because of illness, so many of our large-scale retailers are not even opening their doors.’
As such, the Australian Dollar (AUD) is lagging this morning, despite the positive risk appetite among traders.
Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: Thin Trading Conditions to Mute Pairing?
Looking ahead for the GBP/AUD exchange rate, thin trading conditions ahead of the holiday season may keep the pairing muted.
The most pressing data for the Pound is Thursday’s final GDP growth data. A surprise change to the reading is unlikely, but the confirmation of the UK’s economy slowing down in Q3 may weaken Sterling somewhat.
For the Australian Dollar, investor focus may remain on China in the short term. The country’s exit from it’s zero-Covid policy has been tumultuous, prompting investor concern over soaring Covid cases and deaths.
Despite a vaccine drive being underway, further headlines may weaken the ‘Aussie’ due to it’s status as a Chinese proxy-currency.