Pound Australian Dollar Exchange Rate Slips as Risk Appetite Favours AUD
Article updated 16:38, 9/11/2023:
The Pound Australian Dollar (GBP/AUD) exchange rate is weakening this afternoon, as a shift in the market mood supports the Australian Dollar.
While both sides of the pairing hold elements of risk sensitivity, the ‘Aussie’ is more susceptible to these shifts. Because of this, the cautiously optimistic note of the afternoon’s trade is lifting AUD.
The risk-on mood is increasing as markets await a speech from Federal Reserve Chair Jerome Powell, which will hopefully illuminate the Fed’s path forward. If he takes a hawkish stance, the market mood could sour, which may reverse GBP/AUD’s current losses.
At the time of writing, GBP/AUD is trading at around AU$1.9122, falling by just under 0.3% from the morning’s opening rates.
Original article continues below:
Pound Australian Dollar (GBP/AUD) Exchange Rate Sideways amid Growing Chinese Deflation Jitters
The Pound Australian Dollar (GBP/AUD) exchange rate is rangebound this morning, amid growing Chinese deflation worries.
At the time of writing, GBP/AUD is trading at around AU$1.9188, showing little movement from the morning’s opening rates.
Australian Dollar (AUD) Undermined by Chinese Deflation Fears
Sentiment towards the Australian Dollar (AUD) is being sapped this morning, following a dismal set of Chinese consumer price indexes.
Headline inflation printed -0.2%, below forecasts of -0.1%, and sparked renewed concerns that the Chinese economy is entering deflation.
With this, markets are growing concerned that the economic superpower’s road to recovery is encountering another block.
Bruce Pang, Chief Economist at Jones Lang Lasalle, commented:
‘The data shows combating persistent disinflation amid weak demand remains a challenge for Chinese policymakers. An appropriate policy mix and more supportive measures are needed to prevent the economy from a downward drift in inflation expectations that could threaten business confidence and household spending.’
Due to AUD’s stature as a Chinese proxy-currency, these anxieties are serving to keep a lid on its movements.
Additionally, the muted market mood is further limiting the ‘Aussie’ due to its risk-sensitive nature. Between the aforementioned Chinese CPI and falling US Treasury yields, investors are remaining at the sidelines for now.
Pound (GBP) Restricted as Pill Rules Out Additional Hikes
Despite the tentative return of risk-on trade, the Pound (GBP) is remaining trapped in narrow boundaries this morning.
Dovish comments by Bank of England (BoE) Chief Economist Huw Pill appear to be limiting Sterling’s upside. During a presentation, Pill explained that monetary policy was emphatically in restrictive territory.
While he indicated that there were no plans for rate cuts, he appeared to rule out the possibility of any additional hikes.
Pill explained:
‘Having established monetary policy in restrictive territory, it’s not the case that we need to raise rates in order to bear down on inflation. Sustaining rates at their current restrictive level will continue to bear down on inflation.’
However, these comments were more hawkish than Pill’s earlier commentary in the week, which suggested rate cuts as soon as Summer 2024.
Pound Australian Dollar Exchange Rate Forecast: UK GDP Contraction to Dent GBP?
Looking ahead for the Pound, the core catalyst of movement is likely to be tomorrow’s third quarter GDP data.
Economists currently anticipate a contraction of 0.1% on a quarterly basis, which could weigh heavily on Sterling.
If the UK’s economy has contracted in Q3 compared to Q2, this may reignite recession anxieties amongst GBP investors.
For the Australian Dollar, the RBA’s latest statement on Monetary Policy is due overnight tonight. As the bank may look to justify its recent rate hike and prevent further weakness in AUD exchange rates, it may skew hawkish.
This could, in turn, support AUD if it proves sufficiently convincing and may spark renewed interest rate hike bets.
Elsewhere, risk appetite is likely to play a role in shaping the pairing. As a safer option, a tepid market mood could lift GBP above the acutely risk-sensitive ‘Aussie’.