Pound Australian Dollar (GBP/AUD) Exchange Rate Supported by Chinese Private Sector Slump

Pound Australian Dollar (GBP/AUD) Exchange Rate Climbs Higher as Risk Appetite Worsens

(Updated 16:27 16/05/23)

The Pound Australian Dollar (GBP/AUD) exchange rate is climbing higher today. A pullback in global risk appetite this afternoon may be pushing the pairing higher.

The shift in market mood is thought to be due to the impending talks regarding the US debt ceiling.

At time of writing the GBP/AUD exchange rate is at around AU$1.8753, which is up roughly 0.4% from this morning’s opening figures.

Original article continues below:

Pound Australian Dollar (GBP/AUD) Exchange Rate Rises as Chinese Data Underwhelms

The Pound Australian Dollar (GBP/AUD) exchange rate is climbing today. Below-forecast data for China’s private sectors may be bolstering the pair today.

On the other hand, the latest UK jobs data may be capping GBP/AUD’s gains today. A surprise rise in unemployment a slowdown in wage growth may be prompting a pullback in Bank of England (BoE) rate hike bets.

At time of writing the GBP/AUD exchange rate is at around AU$1.8727, which is up around 0.2% from this morning’s opening figures.

Australian Dollar (AUD) Drops as Chinese Private Sectors Disappoint

The Australian Dollar (AUD) is falling today. Downbeat Chinese private sector data may be pulling the ‘Aussie’ lower.

Output data for China’s industrial and retail sectors came in below forecasts overnight. April’s industrial production printed at 5.6% versus the 10.9% expected.

Additionally. April’s retail sales failed to meet forecasts of 21%, printing at 18.4%. The disappointing data added to speculation that China’s recovery may be slowing, increasing the need for additional fiscal support from the Chinese government.

AUD may be seeing its losses limited by fresh bets on additional policy tightening from the Reserve Bank of Australia (RBA). The latest meeting minutes hinted that additional interest rate hikes would be needed after May’s surprise increase.

A return of global risk appetite may also be cushioning losses for the risk-sensitive ‘Aussie’.

Pound (GBP) Falls amid Signs of Cooling Labour Market

The Pound (GBP) is slipping against its peers today, although is making gains against the Australian Dollar (AUD). The latest employment data pointed to a cooldown in the UK’s labour market, reducing BoE rate hike expectations and keeping pressure on GBP.

March’s unemployment rose unexpectedly to 3.9%. its highest point since the period between November 2021 and January 2022. Employment also increased by 182,000 in February.

Additionally, private sector pay held steady at 5.8% in March. Inflation-fuelled price rises continued to outstrip pay growth.

Labour data has been cited by the BoE as a key factor in their interest rate decisions. Markets are now anticipating a slower pace of policy tightening from the central bank.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said:

‘Wage growth is slowing rapidly enough for the MPC (Monetary Policy Committee) to keep Bank Rate at 4.50% at its next meeting on June 22.’

BoE policymakers have recently expressed a more hawkish sentiment, however. This may be cushioning Sterling’s losses today.

Speaking on Monday in an online presentation, BoE Chief Economist Huw Pill said:

‘The risk is that self-sustaining, second-round-effect momentum within the UK economy keeps inflation running at above-target levels.’

GBP/AUD Exchange Rate Forecast: Will Bailey Dovish Tilt Weigh on GBP?

The Pound could see additional losses on Wednesday following a speech from BoE Governor Andrew Bailey. Markets will likely be anticipating cautious comments from Bailey in line with his speech following the BoE’s interest rate decision.

More generally, BoE rate hike bets could inspire additional movements in Sterling this week. Markets seem to be erring on the side of caution, pricing in just 20bps of additional tightening from the central bank. These dovish expectations could dent confidence in GBP.

For the Australian Dollar, employment data on Thursday could bolster the ‘Aussie’ if it prints as forecast. April’s rate is expected to remain unchanged at 3.5%, close to February’s 50-year low. The data could also prompt fresh bets on additional RBA policy tightening.

Any further shifts in the price of iron ore could also inspire movement in AUD.

Gareth Monk

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