Pound Australian Dollar Exchange Rate News: GBP/AUD Directionless as Risk Aversion Subsides

September 27, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Directionless as Risk Aversion Subsides

GBP/AUD Exchange Rate Sluggish as GBP Attempts to Regain Ground

The Pound to Australian Dollar (GBP/AUD) exchange rate was trading narrowly on Tuesday as GBP attempted a wary comeback and risk appetite dominated AUD trade.

At time of writing the GBP/AUD exchange rate traded at around AU$1.6645, which was roughly the same as Tuesday’s opening levels.

Pound (GBP) Firms but Remains Under Pressure

The Pound (GBP) was strengthening against many of its peers on Tuesday as it attempted to recover from Monday’s chaotic trading session.

Following Sterling’s collapse on Friday, hints of further potential tax cuts from Chancellor Kwasi Kwarteng saw GBP slump even lower, before hopes that the Bank of England (BoE) might intervene helped the Pound regain ground.

However, the central bank only released a statement. In response, Charlie Bean, former BoE Deputy Governor, commented:

‘On this occasion if I had still been at the bank in my role as deputy governor I certainly would have been counselling the governor that I think this is one of those occasions where it might have made sense (to call a meeting).’

Tuesday saw GBP edge higher ahead of a speech from BoE Chief Economist Huw Pill. Expectations that Pill might address the current crash in UK markets could be supporting Sterling.

However, some investors believe that the speech may be nothing more than a placating gesture from the BoE, designed to shore up the Pound after their lacklustre statement yesterday, amid worries that the BoE isn’t doing enough. As such, Sterling’s gains were being capped ahead of the speech.

Australian Dollar (AUD) Mixed amid Expectation of a Slowing Chinese Economy

The Australian Dollar (AUD) was mixed on Tuesday after the World Bank downgraded its economic forecast for China, which weighed on the ‘Aussie’ due to AUD’s status as a proxy for the Chinese economy.

In its biannual report released on Tuesday, the World Bank slashed its economic forecast for East Asia and the Pacific region from 5% to 3.2%. Most of this decline was due to slowing growth in China, which accounts for 86% of the region’s GDP. This downward revision comes amid China’s housing market crisis and zero-Covid policies.

This forecast, if correct, would put China’s GDP growth behind the rest of the Asia-Pacific region for the first time in 30 years. Furthermore, this slowing of growth has investors concerned about a looming global recession, as China is the world’s second largest economy.

While these concerns pressured the China-proxy ‘Aussie’ Dollar, a recovering market mood helped offset the downside and limit AUD’s losses against GBP.

GBP/AUD Exchange Rate Forecast: Pound to Firm Further Following Pill Speech?

Looking ahead the Pound Australian Dollar exchange rate could see significant movement Tuesday afternoon if Pill’s speech eases investors’ fears.

If Pill’s address delivers a hawkish sentiment, then it’s possible that the Pound could continue to strengthen throughout the afternoon. However, if the speech holds little insight into the BoE’s next decision, then Sterling could lose its gains.

A lack of any significant UK data could see GBP investors turn to domestic headlines for guidance. Could political unrest caused by Liz Truss’s fiscal policy cap the Pound’s gains?

A lack of Australian data will likely leave AUD sensitive to risk appetite. Any more news from China could weigh on the proxy currency further.

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