Pound Australian Dollar (GBP/AUD) Exchange Rate Narrows as Thin Trade Pushes Headlines in Focus
The Pound Australian Dollar (GBP/AUD) exchange rate is rangebound this morning, as thin liquidity pushes the focus to UK domestic headlines.
At the time of writing, GBP/AUD is trading around AU$1.7438, showing little movement from the morning’s opening rates.
Pound (GBP) Undermined by Thin Liquidity, Dour Outlook
The Pound (GBP) is listless this morning, as a lack of economic data is leaving Sterling vulnerable to domestic headlines.
The former Chief Economist of the Bank of England, Andy Haldane, offers a further prediction that more pain is on the way for the UK economy.
He stated:
‘Last year we saw real pay fall and we’ll most likely see the same happen again and that is putting acute financial stress and indeed mental stress on a great many households, that’s one consequence of the absence of growth, or certainly anaemic growth that we’ve seen.’
With a lack of growth on the cards as the UK stares down a recession, sentiment towards Sterling is on the wane.
Furthermore, softening expectations of further tightening from the Bank of England (BoE) could be weighing on the Pound.
Yesterday saw the core PPI output data trim inflation expectations, as the price increases fell far below forecasts. Previously, PPI output printed at 13% in November, but fell to 12.4% in December.
While inflation will likely remain fair beyond the BoE’s target rate of 2%, the data opened up the possibility of less aggressive rate hikes.
Australian Dollar (AUD) Mixed amid Cautious Market Mood
The Australian Dollar (AUD) is enduring mixed trade this morning, but is broadly ticking up amid a tepid market mood.
Underpinning the ‘Aussie’ is its status as a Chinese proxy-currency, as optimism continues to unfurl around China’s economic reopening.
Alongside the reopening, a diplomatic thaw appears to be underway between Australia and China. Tianqi Lithium and IGO, a Sino-Australian venture, are currently bidding for lithium miner Essential metals.
Beyond this, trade opportunities are on the up, which could be inspiring further support for AUD. Li He, a Capital Markets Partner at Davis Polk, stated:
‘We have had a lot more requests for proposals from companies in the past two to three weeks. That is not just because of travel but people think that a reopening is good for the economy, good for capital markets and good for deal execution.’
Furthermore, rate hike bets from the Reserve Bank of Australia (RBA) could be lending further cushioning for AUD. Following from Wednesday’s high inflation print, the RBA appears to have further work to do in terms of rate hikes.
Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast:
Looking ahead for the Australian Dollar (AUD), Australia’s Q4 PPI data is due to print on Friday. Yearly PPI is currently forecast to print at 5.9%, showing a drop from 6.4%.
This could weigh on the ‘Aussie’, as it may remove impetus for the Reserve Bank of Australia to continue hiking rates. However, a shock rise may boost AUD rates by inspiring further RBA rate hike bets.
For the Pound (GBP), liquidity is thin through to the end of the week. Because of this lack of data, GBP may be left vulnerable to domestic headlines. Further news of the continuing industrial action across the UK may weaken Sterling, as it continues to weigh on UK businesses.
Elsewhere, risk appetite across markets may likely drive the pair. Due to the ‘Aussie’s risk-sensitive nature, a shift towards risk-on trade may strengthen it against the safer Pound.