Pound Australian Dollar (GBP/AUD) exchange rate tips lower as UK sales plummet
The Pound Australian Dollar (GBP/AUD) exchange rate has fallen sharply this morning following the release of the UK’s latest sales data. Sales plummeted by 3.2% in December, rather than the 0.5% forecast.
At the time of writing, GBP/AUD is trading at A$1.9210, down by almost 0.5% in the past 24 hours.
Pound (GBP) sinks as retail data released
The Pound (GBP) dropped against several peers this morning as December’s retail data disappointed. Nevertheless, Sterling losses are less pronounced in some exchange rates than others, perhaps owing to risk flows and commodity dynamics.
Amplifying headwinds following the release of this morning’s dismal retail data were fresh concerns that the figures may point to recession conditions. The release marked the biggest drop since January 2021, reflecting sales levels at their lowest point since May 2020.
Depending upon the interpretation of the data, it may be that the British economy is subsequently considered to have entered a recession in Q4 2023. The sales report will likely subtract 0.04 percentage points from British economic output in the fourth quarter according to the Office for National Statistics (ONS). This could spell the difference between a negative reading and a flat reading.
Fuelling the drop in December spending was evidence of consumers stockpiling on food and gifts in November. Moreover, inflationary pressures continued to curtail retail habits, as Alex Kerr, economist at consultancy Capital Economics, remarked:
‘The drags from the cost-of-living crisis and sharp rise in interest rates are still weighing on real incomes and consumer spending.’
Australian Dollar (AUD) boosted by Yuan (CNY) performance
The Australian Dollar (AUD) is climbing in several exchange rates this morning, despite bearish market sentiment. Buoying the currency is relative strength in the Chinese Yuan (CNY), with which the ‘Aussie’ is positively correlated.
Given the close trading relationship between Australia and China, developments in the latter – including currency dynamics – invariably influence AUD dynamics. While strength in the US Dollar (USD) as well as signs of an unstable Chinese economy threaten the Yuan, the People’s Bank of China (PBoC) are attempting to fend off currency weakness, setting a firmer midpoint rate.
Alvin Tan, head of Asia FX strategy at RBC Capital Markets, observes:
‘The PBOC has stepped up its efforts to restrain USD/CNY through the daily fix lately, and this is keeping a lid on USD/CNY at the 7.20 level,’; Chang Wei Liang, FX and credit strategist at DBS, adds: ‘We maintain a constructive outlook on the RMB amid the pipeline of stimulus.’
Elsewhere, the Australian Dollar benefits from a strengthened domestic share market: a technology surge on Wall Street following robust labour data from the United States boosted share prices. ABC media’s Michael Janda reported:
‘Australian investors took their lead from Wall Street in what started as a buy everything session and ended as a buy most things day. Just over three-quarters of stocks on the ASX 200 saw gains, while only 31 companies finished in the red.’
GBP/AUD exchange rate forecast: US data to influence markets?
A lack of data from both the UK and Australia this afternoon leaves GBP/AUD to trade on risk sentiment and wider currency dynamics. A scattering of US trading stimuli this afternoon may influence markets, potentially affecting the Pound Australian Dollar exchange rate.
US consumer sentiment according to the University of Michigan’s consumer sentiment index is expected to have improved in January, potentially buoying USD, depressing the Chinese Yuan and by extension, the ‘Aussie’.
Later this afternoon, separate speeches from the Federal Reserve’s Michael Barr and Mary Daly could also sway ‘Greenback’ exchange rates, influencing market trade.
Elsewhere, risk sentiment will likely be determined by geopolitical tensions; not limited to Israel’s offensive in Gaza, US-and-UK-backed attacks on Houthi rebels in the Red Sea, and domestic political unrest ahead of the UK’s upcoming election.