Pound Australian Dollar Exchange Rate News: GBP/AUD Drops as ‘Aussie’ Enjoys Risk-On Flows

December 5, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Drops as ‘Aussie’ Enjoys Risk-On Flows

GBP/AUD Exchange Rate Falls as Risk Sentiment Improves

The Pound to Australian Dollar (GBP/AUD) exchange rate weakened on Monday as news from China triggered an improvement in risk appetite.

At the time of writing, the GBP/AUD exchange rate traded at around AU$1.8040, down roughly 0.2% from Monday’s opening levels.

Australian Dollar (AUD) Enjoys Risk-On Inspired Tailwinds

The Australian Dollar (AUD) was up against many of its peers on Monday, supported by an upbeat market mood.

The shift in market appetite was triggered by news from China and their easing Covid policies. As the Australian Dollar acts as a proxy currency for China, any optimism about China’s economy can boost AUD.

According to reports, China is due to announce further easing of their Covid restrictions this week, lifting lockdowns across the country. China’s strict Covid policies have previously caused unease in global markets as they have disrupted the country’s economic growth. As such, the prospect of a shift in policy has cheered investors.

Despite the optimism it’s likely the ‘Aussie’ had its gains tempered amid investor caution. While a reopening would be positive for China’s economy, some fear that a hasty and poor-managed shift could create chaos. As such, AUD saw its potential capped on Monday.

Pound (GBP) Under Pressure amid Gloomy Economic Outlook

Meanwhile, the Pound (GBP) struggled for support on Monday, weighed down by recession woes.

Domestic headlines and a stagnation reported in the UK services PMI kept GBP investors cautious. With both data and analysts reporting a weakening UK economy, worries about the country’s recession began to mount.

In their latest forecast, the Confederation of British Industry (CBI) has slashed their prediction of economic growth. In 2023 the CBI forecasts UK GDP will shrink by 0.4%, which is far worse than their previous expectations of 1% growth.
Commenting on the economic forecast, CBI Director-General Tony Danker said:

‘Britain is in stagflation – with rocketing inflation, negative growth, falling productivity and business investment. Firms see potential growth opportunities but a lack of “reasons to believe” in the face of headwinds are causing them to pause investing in 2023. Government can change this. Their action or inaction to support growth and investment will be a key determinant of whether recession is shallow or deep.’

Compounding the CBI’s bleak economic expectations were Monday’s domestic headlines. As the shock of inflation continues to erode spending power, many businesses face closure amid spiking energy costs. This has the potential to put hundreds of pubs out of business, which will further dent the UK’s potential for economic growth.

With the economic outlook in the UK declining, Sterling was kept on the back foot during Monday’s trading session.

GBP/AUD Exchange Rate Forecast: RBA Rate Decision to Dent the ‘Aussie’?

Looking ahead the Pound Australian Dollar pair will likely be driven by the Reserve Bank of Australia’s (RBA) upcoming interest rate decision, which takes place in the early hours of Tuesday morning.

Markets have priced in a dovish 25bps hike. If correct, the Australian Dollar could face headwinds. However, with global central banks now considering smaller interest rate hikes, it’s possible that AUD’s losses could be limited.

Turning to the UK, the British Retail Consortium’s (BRC) retail sales monitor report is due. Also set to publish overnight on Tuesday, the figures are expected to reveal a slowdown from 1.2% growth year on year in October to 0.6% in November. If the data prints true, this would be the third consecutive month of slowing growth. This could stoke recession fears more and weigh on the Pound during Tuesday’s trading session.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Australian Dollar Forecasts