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Pound Australian Dollar Exchange Rate News: GBP/AUD Flat as Chinese Economy Slows

May 16, 2022 - Written by John Cameron

GBP/AUD Flat amid China’s Economic Slowdown

The Pound Australian Dollar (GBP/AUD) exchange rate is trading in a narrow range today due to an array of disappointing Chinese data, placing pressure on the global economic recovery.

At the time of writing, the GBP/AUD exchange rate is trading at approximately AU$1.7682, shedding most of its overnight gains.

Australian Dollar (AUD) Subdued After China’s Lockdown Negatively Impacts Economy

The China-proxy Australian Dollar (AUD) is starting the week’s session on the back foot against the majority of its peers after China’s lockdown sparks fears for the global economy.

Due to the close trading relationship between Australia and China, China’s downbeat data releases are weighing on AUD’s appeal.

In April, China’s retail sales contracted by 11.1%, after a 3.5% decline in March and worse than expectations of a 6.1% contraction.

This is the largest drop since the beginning of the pandemic in March 2020 and is mainly attributed to the covid-related lockdowns across China’s major cities.

At the same time, China’s unemployment rate increased from 5.8% to 6.1%, the highest reading since February 2020.

Together, the figures highlight how China’s recent lockdowns restricted work, placed pressure on disposable income and prevented consumer spending, hammering the world’s second-largest economy.

Moreover, Chinese industrial production year-on-year in April showed a 2.9% contraction, below both the previous reading and market forecasts of 5% and 0.4% growth, respectively.

Naeem Aslam, analyst at Avatade, commented:

‘Clearly, it is China’s zero-tolerance policy that is causing the industrial output and consumer spending to break down, and currently, they are sitting at their worst level since the pandemic began.

‘The data has made traders anxious about the global economic outlook.’

Pound (GBP) Rangebound on Renewed Brexit Concerns

Meanwhile, the Pound (GBP) is muted against the Australian Dollar amid fresh Brexit woes.

On Monday, Boris Johnson is scheduled to travel to Belfast. At present, the UK government is both hoping to have constructive meetings with the EU and threating to act unilaterally.

Thus far, Johnson has suggested the protocol will not be scrapped, but should instead be altered to improve its operation.

In his crisis talks today, Johnson is expected to say that although his government ‘will always keep the door open to genuine dialogue’, there may be ‘a necessity to act’ if the EU refuses to change its position.

This is undermining the relationship between the EU and the UK and could potentially disrupt trade. In turn, this is likely to place additional strain on the already-struggling UK economy amid the country’s cost-of-living crisis.

Moreover, today the Bank of England (BoE) Governor, Andrew Bailey, is set to be questioned by MPs over rising inflation.

Bailey will appear in front of the Treasury select committee as MPs question the bank’s ability to ease surging inflation as the UK cost-of-living crisis rages on.

Harriett Baldwin, one of the Tory MPs on the committee, said:

‘I have been flagging up for a long time now the risk of them misjudging things and putting in too much monetary stimulus into the economy for too long.

‘When things started to open up again, they didn’t really take their foot off the pedal very quickly.

‘There are things that have been unforeseen like the war in Ukraine, but there are things that were foreseen that the fiscal and monetary stimulus was there for too long and too protracted once things started to recover.’

GBP investors may be acting cautiously as they await Bailey’s comments.

GBP/AUD Exchange Rate Forecast: RBA Meeting Minutes in Limelight

Looking ahead, the Pound Australian Dollar exchange rate may be influenced by the Reserve Bank of Australia’s (RBA) meeting minutes.

On Tuesday, the RBA’s latest meeting minutes are scheduled for release. If the minutes present a hawkish tone, it may bolster RBA interest rate hike bets and underpin AUD exchange rates.

Meanwhile, the UK’s unemployment rate is expected to hold steady at 3.8%. Will a market surprise impact GBP exchange rates?

On Wednesday, the Pound may be weighed on by the latest consumer price index reading. In April, the UK’s CPI is expected to increase from 7% to 9.1%. If this prints true, it is likely to exacerbate the UK’s cost of living crisis and hamper demand for Sterling.

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