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GBP to AUD Exchange Rate Hit Back by Poor UK Job Report despite Market Risk-Aversion

October 13, 2020 - Written by James Fuller

The British Pound to Australian Dollar (GBP/AUD) exchange rate has been knocked back from its best levels today, as investors react to UK ecostats and become more anxious about the Brexit process. However, the Australian Dollar’s gains were limited overall, as investors remain hesitant to buy currencies correlated with risk and trade-sentiment today.

Last week’s higher market risk-sentiment pushed GBP/AUD lower from the level of 1.8063 to the level of 1.8000 throughout the week. GBP/AUD also briefly touched on a low of 1.7966.

This week so far has seen a fairly strong rebound attempt though. The Pound benefitted from market risk-aversion and concerning Australian trade developments, which caused GBP/AUD to surge almost a whopping two cents.

Last night, GBP/AUD touched on a high of 1.8195. This was the best level for GBP/AUD in about a fortnight, since late September.

Today has seen the pair slip back though. The Australian Dollar is clawing back some of its losses, but its gains are limited due to persisting concerns about trade relations between Australia and China.

GBP Exchange Rates Knocked as UK Job Market Hit Worse than Expected by Coronavirus Pandemic

After months of Britain’s key unemployment rate being more resilient than expected amid the coronavirus pandemic, the latest UK job market report has finally showed a huge worsening in unemployment.

Today’s UK job market report came in notably worse than expected in many major prints. It indicated that the coronavirus pandemic had a bigger negative impact on Britain’s job market in August than previously feared.

Far more jobs were lost than forecast, and the key unemployment rate worsened to 4.5% rather than the expected 4.3%.

What’s more, while the pace of UK jobless claims has slowed, analysts warn that UK unemployment rate figures are bound to catch up with jobless claims in the coming months.

According to Professor Costas Milas from the University of Liverpool:

‘The UK claimant count already took off in April (full lockdown) and continued to rise even as stringency measures were somewhat relaxed.

The point is that the UK unemployment rate will catch up and both will keep rising for as long as stringency measures remain above the pre-pandemic era.’

On top of UK job market fears, the Pound’s appeal is also limited due to concerns that UK-EU Brexit negotiations could still collapse if not enough progress is made.

AUD Exchange Rate Appeal Limited on Australia China Trade Tensions

The Australian Dollar is a currency often correlated with market risk and trade sentiment.

This was one of the reasons the ‘Aussie’ advanced last week, as the currency benefitted from rising bets that Democrat Joe Biden would win next month’s US Presidential Election and that this would make it easier for the US to push through new fiscal stimulus.

However, this week so far, markets have been looking to safe havens again instead.

It comes amid concerns that there will be no pre-election fiscal stimulus for the US after all.

Australia’s own domestic trade and risk concerns have left the Australian Dollar especially unappealing today.

Trade relations between China and Australia are reportedly worsening, and China halted coal exports from Australia. As China is Australia’s biggest trade partner, this concerned Australian Dollar investors.

Some analysts do believe that this could be temporary though, as China is reliant on Australian coal for its economy. According to Kerry Craig, Global Market Strategist at JPMorgan:

‘There is still a clear symbiotic relationship between the two nations in as much as Australia is still reliant on exports to China and China is reliant on the higher quality coal and iron ore from Australia while it rebuilds its economy,’

GBP/AUD Exchange Rate Forecast: ‘Aussie’ in Focus While Markets Await Brexit News

Later this week, huge Brexit developments could potentially hit the Pound to Australian Dollar exchange rate.

Markets still believe there is a risk that UK-EU Brexit negotiations could collapse, if the UK government is not satisfied with the progress of talks by the 15th of October.

However, as markets await Brexit news, or in case there turns out to be no surprising Brexit developments, GBP/AUD is more likely to be driven by Australian news in the coming sessions.

Tomorrow’s Asian session will see the publication of Australia’s October consumer confidence data from Westpac. HIA’s new home sales results from September are due as well.

On top of that, Reserve Bank of Australia (RBA) Governor Philip Lowe will hold a speech on Thursday, which will be followed by Australia’s anticipated job market report.

Domestic news could influence AUD, but the currency will also be sensitive to shifts in US politics and risk-sentiment.

If Australia-China trade relations improve again, this could also boost risk-sentiment and lead to fresh losses in the Pound to Australian Dollar exchange rate.
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