Pound Australian Dollar Exchange Rate Rangebound amid Signs of Cooling UK Labour Market

August 16, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate Rangebound amid Signs of Cooling UK Labour Market

Pound Australian Dollar (GBP/AUD) Exchange Rate Trades Narrowly amid Risk-Off Mood

The Pound Australian Dollar (GBP/AUD) exchange rate trended sideways on Monday. Gains for the currency pair may have been capped by evidence of a cooling UK labour market. Hawkish indicators from the Reserve Bank of Australia (RBA) may also have kept bets on GBP/AUD limited.

The pair may have seen losses limited by sustained bets on rate hikes from the Bank of England (BoE), however.

At time of writing the GBP/AUD exchange rate was at around $1.7176, virtually unchanged from the morning’s opening figures.

Pound (GBP) Falls as Inflation Hits UK Wages Despite Growth

The Pound (GBP) slipped on Tuesday after mixed jobs data added to uncertainty surrounding the currency. The Bank of England’s (BoE) downbeat forecasts for the UK economy may have also kept enthusiasm for Sterling limited.

Signs of a cooling labour market have weighed on the Pound on Tuesday. Whilst unemployment remained unchanged at 3.8%, job vacancies fell for the first time since 2020.

Analysts highlighted the figures as evidence that UK businesses were slowing their hiring efforts.

The fastest decline in UK real pay since 2001 likely also kept bets on the Pound limited. The impact of inflation meant that the value of workers’ pay fell by 3%.

The fall came despite a surprise increase in average earnings figures.

The strong wage growth led to renewed speculation of a 0.5% interest rate hike from the BoE, however. This likely helped to underpin Sterling.

Australian Dollar (AUD) Drops despite Assurances of Further RBA Rate Hikes

The Australian Dollar (AUD) fell on Tuesday. A risk-off market mood likely weighed on the ‘Aussie’ as well as fears of a slowdown in China, the country’s primary trading partner.

Monday saw the release of unexpectedly disappointing data from China. July’s figures indicated a squeeze on activity in the country’s retail and manufacturing sectors.

The country’s ‘Covid-zero’ strategy employed to control any Covid-19 outbreaks was thought to have had an impact on the country’s performance. The surprise rate cut from the People’s Bank of China (PBOC) may have also weighed on AUD.

A drop in iron ore prices may have also limited gains for the Australian Dollar on Tuesday.

The release of the latest meeting minutes from the Reserve Bank of Australia (RBA) may have helped to underpin the ‘Aussie’, however. The RBA’s minutes signalled that further interest rate hikes would be coming, but that future decisions would be data-driven.

In the minutes the RBA said:

‘The board expects to take further steps in the process of normalizing monetary conditions over the months ahead, but it is not on a pre-set path.’

Investors likely picked up on the hawkish signals although the RBA’s more cautious tone may have limited bets.

GBP/AUD Exchange Rate Forecast: Will UK Inflation Data Increase BoE Rate Hike Bets?

Looking ahead for Sterling, July’s inflation figures could prompt mixed movements in the currency on Wednesday. Inflation is currently forecast to rise to 9.8% which would be its highest point since 1982.

The Pound could be pushed lower if the figures add to the impact of inflation on real pay. The data could also increase fears over the effect of the cost-of-living crisis on household spending power.

On the other hand, higher inflation could be viewed by investors as cause for further rate hikes from the BoE. This could help to push the currency higher.

A forecast further downturn to UK retail sales growth may also pull Sterling lower if figures print as forecast.

For the Australian Dollar (AUD), the Reserve Bank of New Zealand’s (RBNZ) interest rate decision on Wednesday could push AUD lower if the New Zealand Dollar (NZD) sees a boost.

Thursday’s jobs data could help to bolster the ‘Aussie’ if unemployment remains unchanged at a 50-50-year low of 3.5%. The currency could see increased bets on further interest rate hikes from the RBA.

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