Pound Australian Dollar (GBP/AUD) Exchange Rate Slips amid Poor UK Retail Data

October 21, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Slips amid Poor UK Retail Data

Pound Australian Dollar (GBP/AUD) Exchange Rate Plummets amid Poor UK Retail Data

Friday saw the Pound (GBP) weaken against the Australian Dollar (AUD) as September’s UK retail sales data showed a second month of decline.

This saw the GBP/AUD exchange rate trade at around AU$1.7789, showing a rough decline of around 0.6%.

Pound (GBP) Declines as UK Retail Data Shows Second Consecutive Slump

The Pound (GBP) saw strong headwinds on Friday, leading to Sterling to weaken against most of its major peers during the session. This was prompted by the release of September’s retail sales data, which marked a second consecutive decline.

The retail sales data came in below market forecasts. Analysts were expecting a decline, but only of a modest 0.5%, as opposed to the 1.4% drop printed on Friday. This followed on from August’s revised decline of 1.7%, marking a second consecutive month of decline in retail sales after July brought a brief respite.

This weighed upon UK investors on Friday as it stoked concerns around the UK’s economic outlook by highlighting how the cost-of-living crisis is impacting consumer spending habits. With rising interest rates and 40-year-high inflation, people are unable to boost the economy via retail.

These figures were compounded by the release of September’s public sector borrowing figures. The Office for Budget Responsibility (OBR) had estimated that budget deficit would be roughly £73.6 billion, but the data showed a higher deficit of £79.3 billion.

The effects of this were explained further by Ruth Gregory, the senior economist at Capital Economics. She stated: ‘The weakness in retail sales and overshoot of the Office for Budget Responsibility’s March public borrowing forecast won’t make the next prime minister’s task any easier in navigating the economy through the cost-of-living crisis, cost of borrowing crisis and the cost of credibility crisis.’

Australian Dollar (AUD) Muted amid Risk-Off Market Mood

Friday saw the Autralian Dollar (AUD) trade in a narrow capacity, with its gains muted by a bearish market sentiment.

The risk-off mood has been encouraged by global developments, especially with the Ukraine-Russia conflict. As the conflict deepens, investors have elected to move away from riskier currencies, favouring safe-haven choices such as the US Dollar (USD).

Elsewhere, due to the ‘Aussie’s status as a proxy-currency for China, the latest developments in the Chinese economy have further served to mute AUD. Thursday saw the People’s Bank of China (PBoC) keep lending rates unchanged, despite increasing pressure on the Yuan, leading to further deprecations against other currencies.

Furthermore, Thursday’s lower-than-expected employment change figures have weighed on the ‘Aussie’. With markets expecting a 25000 increase in employment, the modest improvement of 9000 was seen as disappointing to investors, despite Australia’s unemployment rate remaining low. As such, AUD has been unable to make many gains against peers other than the Pound (GBP).

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: UK Politics in Focus

Looking ahead, the volatility that currently holds the Pound Australian Dollar (GBP/AUD) exchange rate may continue, which would result in the pairing trading in a wider range.

The core catalyst of this movement may be the continuing political turbulence striking the UK. With Conservative MPs currently in the process of selecting their preferred candidates for leader, the decision could weigh heavily upon the Pound.

Should the wider political chaos continue during this process Sterling is likely to be weakened.

For the Australian Dollar, the key driver of movement could be the Chinese economy. Should the Yuan continue to weaken, the ‘Aussie’ may struggle to gain ground.

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