GBP/AUD exchange rate shoots upward as commodity prices tumble
The pound Australian dollar (GBP/AUD) exchange rate is extending gains today as the falling price of energy and metals weighs upon the commodity-linked Australian dollar (AUD). In other exchange rates, the pound (GBP) trades mixed.
At the time of writing, GBP/AUD is trading at A$1.9484, almost 0.4% higher than this time yesterday.
Australian dollar (AUD) slides as export values weaken
The Australian dollar is sinking across the board today, depreciating alongside the value of its main exports – energy and metals. This marks the seventh day in AUD’s downward trajectory.
The Australian economy relies upon the sale of commodities such as iron ore, coal, gold and petroleum gas; when these items reduce in value, the ‘Aussie’ suffers. Also depressing the currency today is weakness in China’s economy.
Given the close trading relationship between China and Australia, weakness in the world’s second-largest economy invariably dampens AUD morale. Commenting upon the situation in China, Joseph Capurso, head of international economics at the Commonwealth Bank of Australia, remarks:
‘The interest rate cuts by the People’s Bank of China (PBoC) and the outcomes of the Third Plenum are too modest to convince market participants that a significant acceleration in the Chinese economy is in prospect.’
Finally, a risk-off mood further pressures the Australian dollar. Political jitters in the US following President Biden’s stepping down in the runup to the election triggered some volatility in the currency markets; a perceived-riskier currency, AUD loses support during times of unpredictability.
Nevertheless, tight labour market conditions in Australia suggest the Reserve Bank of Australia (RBA) may enact a further interest rate hike in August. The possibility of hawkish central bank action could cap losses for the ‘Aussie’.
Pound (GBP) pressured by renewed rate cut bets
Despite climbing against the ‘Aussie’, the pound is facing headwinds against several peers today as expectations for the Bank of England (BoE) turn bearish.
Following weeks of bullish speculation, markets are now predicting a dovish pivot from the UK’s central bank following last week’s disappointing retail data. In June, sales fell by 1.2% rather than the 0.4% forecast; on an annualised basis, retail activity unexpectedly contracted.
Also prompting expectations of monetary policy normalisation is a deceleration in the growth of average earnings – a key contributor towards inflation in the service sector. In May, average salaries increased by 5.7%: the slowest rate of growth since September 2022.
Following the release of the employment data, Rob Wood, Chief UK Economist at Pantheon Macroeconomics commented: ‘Rate setters will breathe a sigh of relief after today’s labour market data, which leaves open the option to cut in August despite hot CPI services inflation.’
Given a lack of significant UK data today, Sterling investors look ahead to tomorrow’s PMI releases for further trading impetus. Both service sector and manufacturing activity are expected to have expanded this month according to flash estimates: if the data prints as forecast, GBP may enjoy a boost tomorrow.
GBP/AUD forecast: market volatility to influence exchange rate?
Through the remainder of today’s session, the pound Australian dollar exchange rate is likely to trade upon external factors, given the absence of significant data from the UK or Australia.
Political jitters in the US may continue to inspire volatility in the currency market, potentially denting both currencies. Strong economic performance in the States could further depress the risk-off ‘Aussie’ tomorrow, given the negative correlation between the currencies.
Sterling could enjoy tailwinds, however, if PMI data prints as expected; although dwindling hopes for a hawkish BoE may cap gains for the currency.