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Pound Australian Dollar Exchange Rate News: GBP/AUD Drops as Chinese Inflation Exceeds Expectations

May 11, 2022 - Written by John Cameron

GBP/AUD Stumbles as China’s CPI Reaches Five-Month High

The Pound Australian Dollar (GBP/AUD) exchange rate is falling today after China’s consumer price index printed above expectations in April.

At the time of writing, the GBP/AUD exchange rate is trading at approximately AU$1.7670, roughly down 0.5% from today’s opening levels.

Australian Dollar (AUD) Bolstered by Chinese Inflation Release

The China-proxy Australian Dollar (AUD) is rising against the Pound (GBP) today as China’s consumer price index exceeded expectations.

In April, Chinese inflation accelerated to 2.1%, up from 1.5% in March and beating forecasts for a more modest rise to 1.8%.

This is in the sharpest rise in Chinese inflation in five months and is largely attributed to the disruption caused by local Covid lockdowns.

The uptick in Chinese inflation may drive interest rate hike bets for the People’s Bank of China (PBOC) and, in turn, boost interest rate hike expectations for the Reserve Bank of Australia (RBA). As a result, this is boosting demand for the Australian Dollar.

This morning’s uptick in the Australian Dollar is also being supported by an improvement in risk appetite at the start of the European trading session.

Meanwhile, the latest report from Westpac-Melbourne Institute Index of Consumer Sentiment for Australia is limiting the ‘Aussie’s gains.

According to the report, consumer sentiment dropped by 5.6 points in May.

This is the sixth-consecutive monthly drop and comes amid soaring prices, placing pressure on consumers.

Pound (GBP) Slips as Brexit Woes Return

The Pound (GBP) is falling against the Australian Dollar (AUD) as Brexit uncertainty returns.

Following Sinn Fein’s win in Northern Ireland’s elections earlier in the week, the UK government are pushing for Northern Ireland protocol negotiations to resume.

Although the EU commissioner Marcos Sefcovic has stated ‘renegotiation is not an option’, the UK Foreign Secretary Liz Truss believes ‘the current EU proposals fail to properly address the real issues affecting Northern Ireland and, in some cases, would take us backward.’

UK Communities Secretary Michael Gove has echoed Truss’ position, saying ‘no option is off the table’.

If the UK government unilaterally amend the protocol, it may cause friction between the UK and the EU and disrupt trade. In response, this is unnerving GBP investors.

Moreover, the Pound is under pressure from the UK’s cost of living crisis.

Rising energy costs and soaring inflation had piled pressure on UK households in recent months.

GBP investors had hoped yesterday’s Queen’s speech would outline more concrete plans from the government to tackle the crisis, but markets were left disappointed.

According to Labour MP Steve Reed, the royal speech offered ‘30-odd measures, all of them very, very small, few of them focusing on the cost-of-living crisis.’

GBP/AUD Exchange Rate Forecast: UK GDP Growth Rate Takes Limelight

Looking ahead, the Pound Australian Dollar exchange rate is likely to be pressured by the latest UK GDP growth rate.

In the first quarter, GDP is forecast to ease from 1.3% to 1%, with the accompanying month-on-month figures expected to report the UK economy stalled in March.

Meanwhile, the UK industrial production may limit any GBP losses as it’s predicted to rebound from -0.6% to 0.1%.

On the other hand, due to an absence of Australian economic data scheduled for the rest of this week’s session, AUD exchange rates will be exposed to market sentiment.

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