Pound Australian Dollar Exchange Rate News: GBP/AUD Climbs in Risk-Off Trade

December 12, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Climbs in Risk-Off Trade

GBP/AUD Exchange Rate Firms as Risk Sentiment Sours

The Pound to Australian Dollar (GBP/AUD) exchange rate enjoyed tailwinds on Monday. A downbeat market mood kept the risk-sensitive ‘Aussie’ on the backfoot.

At time of writing the GBP/AUD exchange rate traded at around AU$1.8130, roughly up 0.4% from Tuesday’s opening rate.

Australian Dollar (AUD) Under Pressure amid USD Investor Cautious

The Australian Dollar (AUD) lacked support on Monday as market sentiment soured and limited the risk-sensitive ‘Aussie’s’ upside potential.

The downbeat mood was attributed to two factors, investors being wary ahead of some high-impact US data releases and Covid news from China.

On the US front, USD investors are bracing ahead of the latest consumer price index release. If the CPI prints as expected, falling from 7.7% to 7.3%, then this could further weigh on interest rate expectations.

The Federal Reserve has been vocal about reducing the rate of interest rate rises as inflation is thought to have peaked. The market has currently priced in a 50bps hike for this week’s policy meeting.

The threat of volatility following these data events is leading investors to shy away from risk-sensitive currencies like the ‘Aussie’.

Elsewhere, news of Covid cases rising in China also weighed on market appetite. Investors are concerned that the spike in cases could limit Beijing’s appetite to continue easing restrictions. If the country reinstates its Covid policies global trade could be impacted.

AUD could face headwinds as both a risk sensitive currency and a proxy currency if this happens. As such, AUD investors traded cautiously in relation to Chinese related headlines on Monday.

Pound (GBP) Muted Despite UK GDP Growth

The Pound (GBP) was up against AUD, but was muted elsewhere in the wake of the UK’s latest GDP figures.

After a brief uptick immediately following the release, this quickly faded.

October’s figures reported the UK economy expanded by 0.5% month-on-month. Although this beat forecasts of an 0.4% expansion it came from a 0.6% contraction in September. and was unable to relieve UK recession concerns.

Echoing these concerns economists have said October’s figures don’t change the UK’s economic outlook.

Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics commented:

‘[I] doubt that the economy will grow again until early 2024, resulting in a deeper and longer recession than we envisage for all other G7 economies.’

This comes as inflation continues to climb, causing economic headwinds for consumers and businesses alike. As peoples spending power continues to erode amid soaring electricity and food prices, luxury spending is on the decline. This means businesses will likely continue to report sales losses, impacting GDP further, as Britan braces for a hard winter.

GBP/AUD Exchange Rate Forecast: UK Jobs Data to Dent GBP?

Looking ahead, the Pound Australian Dollar exchange rate could be driven by UK employment data on Tuesday.

October’s unemployment rate is expected to increase from 3.6% to 3.7%. An increase could cause headwinds for GBP as investors continue to worry about the UK recession.

However, it’s possible that the impact of the employment data could be minimal as investors’ main focus will be on the Bank of England’s (BoE) upcoming interest rate decision amid hopes the bank could shed more light on its monetary policy plans for 2023.

Turning to the Australian Dollar, a lack of impactful data could see AUD influenced by a speech from Reserve Bank of Australia (RBA) Governor Philip Lowe. A dovish tone could harm interest rate expectations and weigh on the ‘Aussie’.
Otherwise, AUD will likely continue to be influenced by risk-sentiment.

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