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Pound Australian Dollar Exchange Rate Trends Sideways as China Growth Worries Continue

May 10, 2022 - Written by John Cameron

Pound Australian Dollar (GBP/AUD) Exchange Rate Rangebound amid Slowdown Fears

The Pound Australian Dollar (GBP/AUD) exchange rate is trading narrowly today. The Pound (GBP) is ticking higher after the Queen’s Speech but is still subdued after a fall to retail sales. The Australian Dollar (AUD) meanwhile is recovering some losses but remaining muted amid fears of a global economic slowdown.

At time of writing the GBP/AUD exchange rate is at around $1.7757, virtually unchanged from this morning’s opening figures.

Australian Dollar (AUD) Trends Higher Despite China Slowdown Fears

The Australian Dollar (AUD) is beginning to recover some of its losses today. A pullback in the US Dollar (USD) and recovery to the equities market may be helping to bolster the ‘Aussie’. On the other hand, Covid-19 lockdowns in China and global growth fears are set to limit major gains for AUD.

China’s ‘zero-Covid’ approach has only heightened fears of a global economic slowdown as the world’s second biggest economy struggles to maintain production levels.

Ho Woei Chen, an economist at UOB Group, said:

‘The outlook for China’s growth has continued to deteriorate due to the prolonged COVID-19 outbreak in Shanghai and other cities adopting a more stringent containment approach to avoid a potential surge in infections.’

This uncertainty may continue to weigh on AUD, with further lockdown measures likely to push the currency lower. The outlook for China has also pushed the price of iron ore lower which may also be limiting any gains for the currency today.

Major losses for the ‘Aussie’ could be limited by strong economic data earlier today, however. Business confidence in April remained in the positive after dropping to 10 from 16, whilst the final reading of March’s retail sales displayed growth of 1.6% versus 1.8% in February. Analysts have highlighted the country’s strong economy despite global inflation and rising price pressures.

Pound (GBP) Ticks Upward as Queen’s Speech Promises BoE Support

The Pound (GBP) is trending higher against many of its rivals today following the delivery of the Queen’s Speech in the Houses of Parliament today. The speech, delivered by Prince Charles, stated that the government would ‘drive economic growth’ and ‘support the Bank of England (BoE) to return inflation to its target’.

Whilst the speech may have provided a temporary boost to Sterling, analysts highlighted the lack of immediate short-term support to UK households. Last week’s gloomy forward outlook from the BoE has continued to weigh on GBP, with inflation forecast being revised upward to peak at 10% amid the country’s cost-of-living crisis.

The speech also referenced reports that the UK government is set to introduce legislation that would enable them to ignore large parts of the Northern Ireland Protocol. With negotiations between the UK and EU set to continue over the issue, this could generate fresh headwinds for the Pound.

Sterling’s upward movement is potentially being limited today by poor retail sales figures for April. Sales slowed by 0.3% amid soaring costs for retailers, increased energy prices, and higher prices for household groceries.

GBP/AUD Exchange Rate Forecast: Will UK Growth Outlook Worsen?

Looking ahead for Sterling, GDP data on Thursday could cause mixed movement in the currency. Month-on-month figures for March are expected to remain largely unchanged, although the growth rate for the first quarter of 2022 is forecast to fall. Whilst the figures will still be higher than comparative data from 2021, this potential slowdown of growth could further dent confidence in Sterling.

Additionally, Thursday is also set to bring a widening of the UK’s trade deficit which could drive the Pound lower. Further Brexit-related headwinds could also limit Sterling’s upward momentum.

For the Australian Dollar (AUD), a predicted fall to consumer confidence on Wednesday could harm the currency’s prospects. Friday’s speech from Reserve Bank of Australia (RBA) Deputy Governor Michele Bullock could also affect AUD. The RBA has been hawkish of late and signals that reinforce this stance could boost the Aussie.

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