Pound Australian Dollar (GBP/AUD) Exchange Rate Firms amid Downbeat Australian Outlook

October 7, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Firms amid Downbeat Australian Outlook

Pound Australian Dollar (GBP/AUD) Exchange Rate Rises amid Dreary Australian Forecast

The Pound Australian Dollar (GBP/AUD) exchange rate rose on Friday, as the Reserve Bank of Australia’s (RBA) financial stability review, warned of risks to Australia’s economy.

The GBP/AUD exchange rate traded at around AU$1.7465, a 0.4% rise from Friday’s opening rates.

Australian Dollar (AUD) Suppressed as RBA Review Shows Australian Financial Stability at Risk

The Australian Dollar (AUD) weakened against many of its peers including the Pound (GBP) during Friday’s trading session.

This followed the publication of the RBA’s financial stability review. The review highlighted a litany of risks against Australia’s financial stability, with the RBA striking a hawkish tone.

The review stated that: ‘The combination of higher interest rates and inflation will increase pressure on household budgets and business profitability over the period ahead. This is likely to lead to a turn in the credit cycle, including for lenders in Australia, following a period of very low loan arrears. Debt-servicing challenges will become more difficult still if household incomes are affected by worse-than-expected labour market outcomes.’

While the RBA seemed positive about the prospects of Australia weathering these risks, the review showed that they are acutely aware of the gloomy global economic outlook.

As a risk-sensitive currency, the dour outlook unsurprisingly led investors to shy away from the ‘Aussie’.

Pound (GBP) Soars as Investors Reposition Following Dramatic Slump

The Pound (GBP) soared in Friday’s trading session despite continued downbeat economic and domestic news.

This came from investors correcting their position in Sterling. The currency’s recent lows made it an attractive proposition for price conscious investors.

However, this correction remained limited in scope as GBP investors remain wary of domestic fiscal developments.

Compounding the chaos from Chancellor Kwasi Kwarteng’s unfunded tax cuts, the UK saw a continuing downpour of bleak economic news such as peaking house prices and ever increasing mortgage rates.

This was highlighted by Tom Bill, Head of UK Residential Research at Knight Frank, who stated: ‘It’s a fairly safe bet that UK house prices have now peaked. The impact of rising mortgage rates will begin to hit demand and spending power in coming months, which we believe will lead to a fall of 10% over the next two years for UK prices.’

Pound AUD (GBP/AUD) Forecast: Pound May Be Muted by Domestic News

Looking ahead, domestic news in the UK is likely to be the key catalyst of movement for the Pound. The political and economic situation continues to be highly volatile, and further developments in labour and housing are likely to weigh on the pound.

Risk-sentiment may also influence the GBP/AUD exchange rate, as the global economic outlook remains bleak. A risk-averse mood may continue to strike investors, which may dent the Australian Dollar.

For Australia, the main pressures may come from wider markets. With key economic data for America expected, the risk-sensitive ‘Aussie’ may decline as investors favour safe-haven currencies. However, should the data be positive, AUD may see a boon.

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TAGS: Pound Australian Dollar Forecasts