Pound Australian Dollar (GBP/AUD) exchange rate muted as IMF warns against tax cuts
Article updated 16:18. 30/1/2024:
The Pound Australian Dollar (GBP/AUD) is remaining flat this afternoon, following warnings against tax cuts from the International Monetary Fund (IMF).
The IMF cautioned that the UK Government should prioritise investment in public services, and to keep debt levels under control. As UK Chancellor Jeremy Hunt has recently indicated room for tax cuts in his spring budget, this was met with disappointment from GBP investors.
The IMF stated:
‘Preserving high-quality public services and undertaking critical public investments to boost growth and achieve the net zero targets, will imply higher spending needs over the medium term than are currently reflected in the government’s budget plans.’
The UK’s economic growth remains anaemic, and with UK households struggling with the cost-of-living crisis tax cuts may have been a welcome boost to households.
At the time of writing, GBP/AUD is trading at around AU$1.9237, showing little movement from the morning’s opening rates.
Original article continues below:
Pound Australian Dollar (GBP/AUD) exchange rate directionless as Australian retail sales plummet
The Pound Australian Dollar (GBP/AUD) exchange rate is listless this morning, following a sharp drop in Australian retail sales.
At the time of writing, GBP/AUD is trading at around AU$1.9208, showing little movement from today’s opening levels.
Australian Dollar (AUD) slides as retail sales slump
The Australian Dollar (AUD) is struggling to attract support this morning, following a sharp drop in retail sales during December.
On a monthly basis, sales dropped by 2.7%, when economists had only anticipated a 1% fall in activity. This suggested that consumers in Australia are continuing to struggle with inflation and elevated interest rates.
Anneke Thompson, Chief Economist for CreditorWatch, commented:
Very tight household budgets and low levels of available discretionary spending means consumers were searching for savings when buying their Christmas presents and other household goods. Of further concern is the continuing fall in expenditure at cafes, restaurants and takeaway food services.’
Signs that interest rates continue to dent spending could push the Reserve Bank of Australia (RBA) to unwind its monetary policy. Today’s data is likely sparking bets on rate cuts in the very near future, which would further weaken AUD.
Pound (GBP) struggles as UK shop inflation slows
The Pound (GBP) is weakening this morning, amid news that UK shop inflation has fallen to its lowest level since May 2022.
In January, shop price inflation printed at 2.9%, a significant cooldown from 4.3% in December. While prices are still on the rise, the rate has slowed considerably.
Helen Dickinson, Chief Executive of the British Retail Consortium, commented:
‘Some New Year cheer as January shop price inflation slid to its lowest level since May 2022. Non-food goods drove the fall, as many retailers offered heavily discounted goods in their January sales to entice consumer spend amidst weak demand.’
This is weighing on Sterling as it is likely prompting increased expectations of imminent interest rate cuts. The Bank of England (BoE) is due to meet on Thursday and set rates, and this news could be further indicative of cooling inflation.
Pound Australian Dollar exchange rate forecast: AU inflation data in focus
Looking ahead for the Australian Dollar, the latest headline inflation data is due to print overnight tonight. In the further quarter, inflation is expected to have cooled from 5.4% to 4.3%.
If this prints accurately, AUD could weaken against its peers as inflation continues to cool. This may prompt bets that the Reserve Bank of Australia can begin cutting interest rates more swiftly than first thought, or at least maintain them as is.
Additionally, the latest Chinese manufacturing PMI is due to print on Thursday. The private manufacturing sector is forecast to have slowed slightly in January, which could dent the ‘Aussie’ due to its nature as a Chinese proxy-currency.
Meanwhile for the Pound, ahead of the Bank of England’s interest rate decision on Thursday, data releases are scarce.
As such, Sterling is likely to trade sideways as investors anticipate any forward guidance from the BoE.