May 13, 2022 - Written by John Cameron
STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Drops as Risk Appetite Improves
GBP/AUD Stumbles as Risk-On Sentiment Prevails
The Pound Australian Dollar (GBP/AUD) exchange rate is falling today amid improved risk appetite as Chinese authorities look to reopen Shanghai.
At the time of writing, the GBP/AUD exchange rate is trading at approximately AU$1.7702, down roughly 0.4% from today’s opening levels.
Australian Dollar (AUD) Bolstered by the Possibility of Easing Chinese Lockdowns
The China-proxy Australian Dollar (AUD) is rising against the Pound (GBP) today as Chinese authorities suggest Shanghai’s lockdown may ease by mid-May.
The city of Shanghai is looking to ease its seven-week lockdown as the number of Covid cases declines. This is, however, contingent on the city eradicating the virus and being in accordance with Beijing’s ‘zero Covid’ policy.
Shanghai’s deputy mayor, Wu Qing, has offered upbeat comments, claiming residents of the city would like to resume normality ‘as soon as possible’.
This is boosting demand for the ‘Aussie’ due to the close trading partnerships between Australia and China. Markets have feared that lockdowns in China could dent demand for raw materials, which in turn would hurt Australian exports.
In addition, AUD is often traded as a proxy for the Chinese economy. As easing lockdowns should benefit China’s economy, the ‘Aussie’ is enjoying an uptick.
Pound (GBP) Faces Headwinds as UK Cost-of-Living Crisis intensifies
Meanwhile, the Pound is dropping against the Australian Dollar as the UK cost-of-living crisis continues.
Last week, the Bank of England (BoE) presented dire economic forecasts as household incomes struggle to keep up with high inflation and rising energy bills.
In response, the UK government is looking to free up £3.75bn by reducing civil servant jobs to 2016 levels.
Jacob Rees-Moggs defended the move, stating that although the increase in jobs was required during Brexit and the pandemic, the government no longer warrants such high level of staffing.
In spite of this, the government has come under fire from the opposition, as well as the union for managers and professionals in public service (FDA).
FDA general secretary Dave Penman commented:
‘Without an accompanying strategy, these cuts appear more like a continuation of the government's civil service culture wars - or even worse, ill-thought out, rushed job slashes that won't lead to a more cost-effective government.’
GBP investors remain cautious as the government’s plans are ridiculed by market experts, fearing the measures will fail to support the UK’s economic recovery.
Moreover, demand for Sterling is under pressure as Brexit uncertainty resumes.
In the wake of Sinn Fein’s win in Northern Ireland’s elections, the UK has threatened to unilaterally amend, and potentially scrap, the Northern Ireland protocol.
If the UK goes ahead with its threats, it may trigger a trade war between the UK and the EU, which could hammer the UK’s already-struggling economy.
GBP/AUD Exchange Rate Forecast: RBA Meeting Minutes in Focus
Looking ahead, the Pound Australian Dollar exchange rate may be influenced by the Reserve Bank of Australia’s (RBA) meeting minutes, which are due out in the early hours of Tuesday morning UCT.
If the minutes reveal a hawkish position from the bank, it may bolster RBA interest rate hike bets and support AUD exchange rates.
On the other hand, the Australian Dollar may be weighed on by China’s latest industrial production report.
In April, Chinese industrial production is predicted to slow from 5% to 0.4%. If market forecasts are met, it may place pressure on the China-proxy ‘Aussie’.
Meanwhile, the Pound is likely to remain exposed to political developments heading into next week. The UK’s unemployment rate on Tuesday could also drive significant movement in Sterling.
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