The Pound Australian Dollar (GBP/AUD) exchange rate initially firmed last week before plunging to a fresh three-month low as risk appetite returned to markets.
What’s Been Happening: GBP/AUD Rocked by Shifting Risk Appetite
The Pound (GBP) wavered against the Australian Dollar (AUD) through the first part of the week, despite a grim market mood putting notable pressure on the risk-sensitive ‘Aussie’.
Worries about higher interest rates, China’s property sector crisis, and the threat of a federal shutdown in the US all weighed on risk appetite.
Sterling was unable to press the advantage against the weaker Australian Dollar, as accountancy goliath KPMG and ratings agency S&P Global Ratings both published bleak economic outlooks for the UK.
GBP/AUD managed to climb midweek, with the ‘Aussie’ ceding ground as the mood soured further. Even an uptick in Australian inflation failed to support AUD exchange rates.
However, the Pound plunged through the latter part of the week as risk appetite recovered. GBP investors seemed largely unimpressed by an upward revision to first-quarter UK GDP.
On Friday afternoon, GBP/AUD bounced off a three-month low as risk appetite waned. Still, Sterling remained down against the ‘Aussie’.
Three Things to Watch Out for This Week
- RBA Interest Rate Decision
The Reserve Bank of Australia (RBA) is expected to hold rates steady for the fourth consecutive meeting. Any hints that the bank believes its hiking cycle is over could see the ‘Aussie’ stumble.
- UK Services PMI
Amid a lack of more notable UK economic data, the final reading of the UK’s services PMI is the focus this week. Confirmation of a worrying decline in activity could weigh on the Pound.
- Australian Trade Data
Australia’s balance of trade is due out on Thursday. Expect to see the ‘Aussie’ strengthen if the country’s surplus widens.
GBP/AUD Forecast
Overall, we could see more volatility in the GBP/AUD pairing this week if the economic events unfold as expected. In addition, risk appetite could add to the turbulence. If sentiment remains as changeable as it was last week, it could drive some big shifts in the Pound Australian Dollar exchange rate.