Pound Australian Dollar (GBP/AUD) Exchange Rate Rangebound as China’s Covid-19 Cases Surge

October 27, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Rangebound as China’s Covid-19 Cases Surge

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

The Pound Australian Dollar (GBP/AUD) exchange rate trended sideways on Thursday. A risk-on market mood kept gains for the currency pair limited. Additionally, concerns regarding the delay of the UK’s budget statement also kept GBP/AUD subdued.

On the other hand, a slip in Chinese industrial profits and surging Covid-19 cases prevented significant losses for the pair.

At time of writing the GBP/AUD exchange rate was at around $1.7903, virtually unchanged from that morning’s opening figures.

Australian Dollar (AUD) Falls as China Imposes Fresh Covid-19 Lockdowns

The Australian Dollar (AUD) slipped on Thursday amid disappointing data from China, its primary trading partner. The ‘Aussie’ was underpinned by a risk-on mood, however. Bets on further interest rate hikes from the Reserve Bank of Australia (RBA) also lent support to AUD.

Figures released on Thursday indicated that profits at China’s industrial firms fell by 2.3% between January and September. The country’s strict Covid-19 restrictions and persistent issues in the property sector were highlighted as contributing factors.

Analysts also highlighted that high operating costs and production difficulties could hamper the sector’s recovery.

The imposition of fresh Covid-19 lockdowns in the Chinese cities of Wuhan and Xining also weighed on AUD on Thursday. China reported a third consecutive day of more than 1000 new Covid cases across the country.

A slip in iron ore prices also kept the Australian Dollar on the defensive.

Market bets on further interest rate hikes from the RBA limited losses for the ‘Aussie’ on Thursday. Hotter-than-expected inflation figures on Wednesday added to speculation that the central bank would adopt a more hawkish approach.

Bill Evans of Westpac Banking Corp said:

‘Not responding firmly to this genuine shock would risk the impression of a central bank that is less than fully committed to the inflation task. The level of interest rates does not appear to be a major issue for the board.’

Pound (GBP) Slips as Markets Consider Fiscal Statement Delay

The Pound (GBP) edged lower on Thursday amid a return of global risk appetite. Sterling also saw a dip as markets showed concern over the delay of the UK government’s fiscal statement.

On Wednesday, UK Chancellor Jeremy Hunt announced that the government would be delaying its financial statement until 17 November. The delayed statement is now set to be a full autumn budget with speculation that Prime Minister Rishi Sunak could reverse previously planned tax rises. Investors are concerned of the effect the delay could have on financial markets.

Confidence in Sunak’s premiership in fact underpinned the Pound on Thursday. Investors have seen Sunak as a safer pair of hands than his predecessor Liz Truss.

Mixed signals from the Bank of England (BoE) also weighed on Sterling. Reports from Reuters earlier in the week indicated that investors were coalescing around the possibility of a bumper 1% rate hike.

Thursday saw increased concerns that the BoE faces the prospect of an interest rate decision with little data to go on, however. Markets have now largely reverted to forecasting a 0.75% rate hike, although there are fears that they central bank could act even more cautiously.

GBP/AUD Exchange Rate Forecast: Will Australian PPI Figures See Increased RBA Rate Hike Bets?

For the Australian Dollar, a predicted uptick in third quarter PPI figures on Friday could bolster RBA rate hike bets and push the ‘Aussie’ higher. AUD could also be affected by shifts in risk appetite and iron ore prices.

Looking ahead for the Pound (GBP), a speech from BoE policymaker Sam Woods on Thursday could prompt movement in the currency. Markets will be looking for any signals of the central bank’s rate hike path ahead of their upcoming meeting.

Investors will also be looking to the newly formed UK cabinet for any hints regarding future fiscal policy. Any further turbulence in the country’s political sphere could weigh on the Pound.

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