Pound Australian Dollar Exchange Rate News: GBP/AUD Climbed amid Market Unease as Mass Protests Rock China

November 28, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Climbed amid Market Unease as Mass Protests Rock China

Australian Dollar (AUD) Undermined by Souring Global Market Sentiment

The Australian Dollar (AUD) tumbled on a gloomy market sentiment amid escalating protests in China.

China’s National Health Commission on Sunday reported 40,347 new Covid infections, a fifth consecutive day of rising cases. Further disruptions to the world’s second largest economy could lead to continued supply chain issues and in turn, a souring market sentiment. Protests have sparked clashes in Shanghai as strict Covid measures have seen protestors clash with police for the third day.

Frustrations over President Xi Jinping’s strict zero-Covid policy have boiled over as infections continue to climb across the country. Anger continues to grow in China amid an unprecedented outcry of public discontent. Victoria Scholar, Head of Investment at Interactive Investor said of the situation:

‘Rare protests have broken out across major Chinese cities in a backlash against the ongoing draconian zero-tolerance to Covid approach from the authorities that has inhibited the freedoms of Chinese citizens since the start of 2020 and that has sharply damaged China’s economic growth.’

Further weighing on market sentiment, and the risk-sensitive ‘Aussie’, is the tumbling price of oil. Fresh downward pressure on oil prices began as global demand could be slowing with the troubling news out of China. A slowdown in manufacturing activity could see a drastic reduction in demand. WTI Crude fell almost 3% to its lowest level since January.

Meanwhile, retail sales in Australia unexpectedly slipped by 0.2% MoM, widely missing an expected 0.5% rise. Signalling the first drop in retail sales since December 2021, rising interest rates and the living cost squeeze hampered consumer spending. Ben Dorber, Head of Retail Statistics at ABS, said of the downbeat data:

‘The October fall in retail turnover ends a run of nine straight monthly rises and suggests increased cost of living pressures including interest rate rises have started to weigh on consumer spending.’

Pound (GBP) Quiet amid Lack of Major Data

The Pound (GBP) remained relatively quiet on Monday, despite climbing against riskier currencies in the wake of a downbeat global market sentiment.

However, despite the relative strength Sterling enjoyed on Monday morning, the inevitable domestic headwinds that usually weigh on the Pound could return. Economists at Danske Bank expect UK GDP growth to be in negative territory for four consecutive quarters. More troubling is that the UK’s economy isn’t expected to experience growth until 2024. They added:

‘Q3 GDP figures marked the official start of the recession and the economy is likely to weaken further from here. The unemployment rate will increase to 5% by the end of the forecast period.

‘Inflation pressures will remain elevated during 2023, forcing the Bank of England to deliver further hikes. We do however see the peak rate well below market pricing and we expect the first cut to be delivered during 2024.’

GBP/AUD Exchange Rate Forecast: Consumer Credit to Weigh on Sterling?

Looking ahead, the Pound Australian Dollar exchange rate could see a retreat from the current high with the release of the Bank of the England (BoE) consumer credit figures. With the cost-of-living crisis worsening, an expected climb of £0.85bn, the first increase since June.

Meanwhile, the Australian Dollar will be left exposed to market sentiment until Wednesday with a flurry of data releases. Continued unrest in China could keep a firm lid on the ‘Aussie’.

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