Pound Australian Dollar (GBP/AUD) Exchange Rate Extends Gains as Risk Appetite Sours
The Pound Australian Dollar (GBP/AUD) exchange rate has rebounded after a shallow downturn yesterday, as risk aversion favours the Pound (GBP) as the more stable of the two currencies. Moreover, UK house price data exceeded forecasts, lending Sterling an extra boost.
At the time of writing, GBP/AUD is trading at A$1.9191, having traded up by almost 0.2% in the past 24 hours.
Pound (GBP) Buoyed by Risk-Averse Environment
The Pound has climbed today against the Australian Dollar (AUD) and several other peers; possibly buoyed by the release of UK house price data, which fell by less than forecast in September.
House prices are currently 1% above end-of-2021 levels – but remain pressured by high borrowing costs. Renters and mortgage holders are on the back foot, with the Office for National Statistics (ONS) reporting that 40% of survey respondents are finding it hard to make payments.
Nevertheless, Sterling morale remains upbeat. Hawkish rhetoric from the Bank of England (BoE) may also be helping to counter headwinds.
Recent speeches from BoE governor Andrew Bailey and deputy governor Ben Broadbent celebrated the central bank’s progress in bringing down inflation: Broadbent said on Thursday that the cost of energy imports should help British inflation return to the BoE’s 2% target in two years.
Against perceived-riskier peers, GBP gains support from its status as a comparatively safe investment. While the Japanese Yen (JPY), Swiss Franc (CHF) and US Dollar (USD) are more established safe-haven currencies, the Pound is generally favoured over the more volatile Australian and New Zealand Dollars (AUD, NZD) when trade turns bearish.
Australian Dollar (AUD) Undermined by Bearish Market Mood
The Australian Dollar (AUD) weakened against the Pound through today’s session, subdued by a risk-off mood ahead of key data from the United States.
Before placing hawkish bets, investors were inclined to wait for signs of strength or weakness in the world’s largest economy. Developments in the US invariably have repercussions across the currency markets.
Trepidation in the lead up to the publication of the employment data overcame possible AUD tailwinds stemming from Australia’s latest Financial Stability Report (FSR). Today’s report revealed that Australian banks remain well-positioned to continue supplying credit, despite persistent global and domestic risks.
While the rise in inflation and interest rates since 2021 has weighed upon household and business finances, economists are optimistic.
Moreover, rumours of a meeting between President Biden and Chinese leader Xi Jinping have inspired hopes of renewed accord between the two superpowers. At their meeting in November last year, both leaders were firm regarding the importance of face-to-face diplomacy.
Given its risk-on status, geopolitical tensions generally pressure the ‘Aussie’; while Chinese developments in particular affect AUD given Australia’s strong trading relationship with China.
GBP/AUD Exchange Rate Forecast: AU Confidence Data to Drive Movement?
As markets close for the weekend, GBP/AUD is unlikely to trade decisively in either direction. Into next week, however, an influx of Australian confidence data is likely to determine the trajectory of the exchange rate.
Westpac consumer confidence is expected to fall on both a monthly and an annualised basis; although October’s drop looks to be less than September’s. Meanwhile, business confidence is also forecast to tumble, with the index expected to hit –2.
Last month, an increase in labour costs capped business confidence – as many associated costs remain inflated, it seems unlikely the data will deviate too far from forecasts.