Pound Australian Dollar (GBP/AUD) Exchange Rate Slides amid Signs of Improving Sino-Australian Trade
The Pound Australian Dollar (GBP/AUD) exchange rate is weakening this morning, amid continued improvements in Sino-Australian trade relations.
At the time of writing, GBP/AUD is trading at around AU$1.8841, a fall of just under 0.4% from the morning’s opening rates.
Australian Dollar (AUD) Rises amid Thawing Chinese Trade Relations
Despite a lack of impactful data, the Australian Dollar (AUD) is on the march this morning. Continually thawing trade relations between Australia and China are likely bringing tailwinds for the ‘Aussie’.
Australian Trade Minister Don Farrell expressed optimism that China will begin to lift tariffs on Australian wine. This could lead to continually improving trade between the two nations, lifting AUD exchange rates.
Elsewhere, although the market mood is muted, expectations of Federal Reserve interest rate cuts are aiding the ‘Aussie’.
Interest rate cuts are now expected as early as May 2024, following the Fed’s dovish pivot last week. Analysts at ING commented that:
‘While not fully reflecting the 110bp of cuts priced by markets ahead of the meeting, this shift in viewpoint from officials has given the market the greenlight to push for more and this is a surprise shift in outlook from them.’
Pound (GBP) Slips amid Lack of Data
The Pound (GBP) is struggling for support this morning, as data releases are few and far between, leaving Sterling exposed.
As an increasingly risk-sensitive currency, the morning’s jittery market mood is serving to undermine the Pound against its peers. As such, while riskier assets are catching bids, the Pound is being side-lined.
With the light data calendar, attention is shifting towards the upcoming consumer price index releases. On Wednesday, headline inflation is forecast to cool to 4.4%, and core inflation is expected to have decelerated to 5.5% in November.
If these releases print in line with forecasts, it may amplify speculation of incoming interest rate cuts from the Bank of England (BoE).
Francesco Pesole, FX Strategist at ING, commented:
‘Markets are still pricing in four rate cuts by the Bank of England this week despite the Bank’s attempt to discourage dovish bets via in-meeting communication. We still think services inflation in the UK will ease to around 4% by next summer, allowing the BoE to start cutting.’
Pound Australian Dollar Exchange Rate Forecast: Hawkish RBA Minutes to Lift AUD?
Looking ahead for the Australian Dollar, the Reserve Bank of Australia (RBA) is due to publish its latest meeting minutes overnight.
If the minutes skew hawkish, and convince investors that another rate hike is possible, the ‘Aussie’ could rise. However, if investors are unconvinced, AUD exchange rates could weaken.
For the Pound, the Confederation of British Industry (CBI) releases the latest industrial trends data tomorrow. GBP could strengthen if it shows an improvement as forecast, as it may signal recovery in the UK retail sector.
However, as the reading is likely to remain in negative territory, any potential gains could be limited in scope.
Elsewhere, risk appetite is likely to play a key role in shaping the pairing. As a more risk sensitive currency, AUD may weaken against GBP if the mood remains muted.