Pound Australian Dollar (GBP/AUD) Exchange Rate Falls as UK Cost-of-Living Crisis Continues
(Article updated 15:31, 29/6/23) The Pound Australian Dollar (GBP/AUD) exchange rate has continued to fall this afternoon, as the UK’s economic and domestic woes continue.
Analysts continued to consider the Thames Water crisis throughout the session, with thought turning the impact interest rates have had on the company.
It seems that with the recent rate hikes from the Bank of England (BoE), Thames Water joined UK businesses and households in struggling to keep up with the cost-of-living squeeze.
Furthermore, UK households have been withdrawing money from their savings accounts at the fastest rate yet recorded.
Figures from the BoE showed that UK households had withdrawn around £4.6 billion from banks and building societies in May.
Daniel Mahoney, UK Economist at Handelsbanken, commented:
‘This provides strong evidence that households are dipping into excess savings built up during the pandemic to sustain living standards during the current cost of living squeeze caused by the high inflation environment.’
At the time of writing, GBP/AUD is trading at around AU$1.9066, falling by just under 0.5% from the morning’s opening rates.
Original article continues below:
Pound Australian Dollar Exchange Rate Weakens amid Surprise Aussie Retail Recovery
The Pound Australian Dollar exchange rate is weakening this morning, following better-than-expected retail sales data from Australia.
At the time of writing, GBP/AUD is trading at around AU$1.9101, falling by roughly 0.3% from the morning’s opening rates.
Australian Dollar (AUD) Climbs on Strong Retail Recovery
The Australian Dollar (AUD) is making strides this morning, following a significantly better-than-expected retail sales print.
May’s sales data showed a 0.7% increase on a monthly basis, versus forecasts of a 0.1% increase. Analysts are pointing to year-end sales as a cause, with a popular ‘Click Frenzy Mayhem’ event likely bringing increased sales.
Ben Dorber, Head of Retail Statistics at ABS, commented:
‘Retail turnover was supported by a rise in spending on food and eating out, combined with a boost in spending on discretionary goods. This latest rise reflected some resilience in spending with consumers taking advantage of larger-than-usual promotional activity and sales events for May.’
Furthermore, it indicates economic resilience, and likely complicates matters for the Reserve Bank of Australia (RBA). With the RBA having hiked rates significantly in an effort to cool demand and curb inflation, resilient spending may indicate the need for an additional hike.
The bank are due to hold their next meeting next week, and while markets are currently unsure on their next action. However, the odds are slowly creeping up in favour of a 25bps hike, with 3/4 analysts at major domestic banks expecting one.
Pound (GBP) Struggles amid Bleak Outlook
Meanwhile, the Pound (GBP) is once again on the defensive this morning. Between a thin data calendar and intensifying cost-of-living crisis, the bleak outlook is weighing on sentiment towards Sterling.
The crisis embroiling the UK water sector is continuing, with Thames Water at the forefront. The company had accrued a £14bn debt pile, and is on the verge of collapse.
Furthermore, the news that water bills could rise by 40% is likely weighing on Sterling, as households continue to struggle.
This may compound existing fears of a hard economic landing, following the Bank of England’s (BoE) recent hike. With the possibility of a multi-billion bailout for Thames Water on the cards, when public finances are already stretched.
GBP/AUD Exchange Rate Forecast: Chinese PMI in Focus
Looking ahead for the Australian Dollar, local data is thin on the ground. Because of this, Chinese data is likely to take precedence.
Tomorrow morning, the latest manufacturing PMI for the economic superpower is scheduled to print. Economists are forecasting a modest improvement for June’s reading, ticking up to 49 from 48.8.
This may weigh on the Chinese proxy-currency, as it could remain in contractionary territory, indicating a muted post-Covid recovery.
Elsewhere, risk appetite could drive the ‘Aussie’. If the market mood turns cheery, AUD rates could strengthen.
Meanwhile, the Pound may struggle for directional trade as the data drought continues. However, if the final quarterly GDP print for Q1 surprises to the upside, Sterling could gain ground.