Pound Australian Dollar (GBP/AUD) Exchange Rate Falls as Australian Labour Data Surprises

March 16, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Falls as Australian Labour Data Surprises

Pound Australian Dollar (GBP/AUD) Exchange Rate Falls as Australian Labour Data Surprises

The Pound Australian Dollar (GBP/AUD) exchange rate weakened during Thursday’s morning trade, as the ‘Aussie’ benefitted from a red hot set of employment data.

The data served to spark further rate hike bets amongst AUD investors, by leaving more room for the Reserve Bank of Australia (RBA) to continue tightening.

At the time of writing, GBP/AUD traded at around AU$1.8121, a decline of 0.6% from Thursday’s morning rates.

Australian Dollar (AUD) Rallies on Hot Labour Data

The Australian Dollar (AUD) strengthened on Thursday morning, following hotter than expected labour data released overnight.

The unemployment rate for February fell below forecasts, printing at 3.5% - down from January’s level of 3.7%. Similarly, employment levels rose by 64600 during February, far exceeding forecasts of a 48500 increase.

Alongside the positivity around Australia’s jobs market, the data likely reiterated the perception that the Reserve Bank of Australia (RBA) could hike interest rates further.

Analysts at ING commented on this, and stated: ‘With Australia’s labour market clearly still very hot, we find it hard to accept that there is only one more rate hike left for the RBA before peak cash rates are reached – despite the hints from the most recent RBA statement.’

Furthermore, a strong rally in iron ore prices may have brought further strength to the Australian Dollar. With this being one of the country’s main exports, the increases likely benefit the Australian economy, thus bringing strength to the ‘Aussie’.

Similarly, a bullish market mood likely contributed another tailwind for AUD, due to the currency’s risk sensitive nature.

Pound (GBP) Struggles as BoE Rate Hike Bets Recede

The Pound (GBP) weakened on Thursday morning, as investors began to readjust their bets on further rate hikes from the Bank of England (BoE).

Following the recent turmoil in the European banking sector, economists began to re-evaluate the potential for further interest rate hikes.

James Smith, Developed Markets Economist at ING, commented: ‘While the feedthrough to the UK is still unclear, beyond global moves in asset prices, the BoE has made it clear that the bar to pausing rate hikes is now fairly low – certainly lower than the Fed and ECB have recently been indicating. The chances of 'no change' are much higher than they were last week.’

Because of the chance of a rate hike pause, Sterling came under selling pressure. Furthermore, continued industrial action across the UK may have sapped sentiment towards Sterling. Rail workers and teachers staged industrial action, bringing pressure to the UK economy.

However, optimism remains following reports that the UK government was to make a refreshed offer on payment for nurses and other hospital staff.

Further limiting GBP may have been reports that the UK’s economy is staring down a decade of income stagnation, which could be having a dampening effect on GBP’s appeal.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: Lack of Data to Dent GBP?

Looking ahead for the Pound (GBP), data releases are thin on the ground in the short term. Because of this, Sterling may be left vulnerable to market sentiment and analysis.

With economists now bringing in a fifty fifty chance that the Bank of England will pause their current tightening cycle at the next meeting following the recent European bank turmoil, any further indications of a pause may weigh on GBP.

Furthermore, as analysts continue to pore over the Spring Budget, any indication that the measures introduced could spark growth may bring a boon to Sterling.

For the Australian Dollar (AUD), the release calendar is also very sparse. Because of this, the risk sensitive ‘Aussie’ may trade on market risk appetite. If the mood remains upbeat in the short term, AUD could rally.

Elsewhere, commodity prices could provide some direction for AUD. With Iron ore prices currently showing a consistent rise, this could benefit AUD due to it being one of the country’s main exports.

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TAGS: Pound Australian Dollar Forecasts