Pound Australian Dollar Exchange Rate News: GBP/AUD Firms amid Increased UK Optimism

December 1, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Firms amid Increased UK Optimism

GBP/AUD Exchange Rate Ticks Higher amid Renewed UK Economic Optimism

The Pound to Australian Dollar (GBP/AUD) exchange rate was supported on Thursday as GBP investors became more optimistic about the UK’s economic outlook.

At time of writing the GBP/AUD exchange rate traded at around AU$1.7871, which was up roughly 0.6% from Thursday’s opening rate.

Pound (GBP) Enjoys Tailwinds amid Improving Economic Outlook

The Pound (GBP) found support on Thursday as investors grew more hopeful about the UK economy.

The uptick was driven by the Federal Reserve’s dovish comments on Wednesday evening. Fed Chairman Jerome Powell stated the US central bank would pursue smaller interest rate hikes in future policy meetings.
In his speech Powell said:

‘The time for moderating the pace of rate increases may come as soon as the December meeting.’

This has cheered GBP investors, who are hoping that lower Fed interest hikes may mean the UK experiences a shallower recession. UK inflation and government borrowing costs could ease, putting less of a strain on the UK economy.

Turning to domestic data, the UK’s manufacturing PMI printed higher than the preliminary results, which further supported the Pound. The final figures rose from 46.2 to 46.5. Whilst still in contraction, the better-than-expected data signalled to investors that the UK’s economic outlook could be improving, adding to hopes of a milder recession.

Australian Dollar (AUD) Struggles despite Positive China News and Upbeat Market Mood

The Australian Dollar (AUD) struggled for support on Thursday, despite its status as a proxy currency for China amid upbeat Chinese news.

According to reports, China is set to ease Covid restrictions. This follows historic protests by Chinese citizens in the past week.

Whilst Covid cases remain high in China, comments from Vice Premier Sun Chunlan about the state of the virus kept some economists hopeful. Reacting to these positive signals from China, analysts at Nomura said:

‘Sun's speech, in addition to the notable easing of COVID control measures in Guangzhou yesterday, sends yet another strong signal that the zero-COVID policy will end within the next few months. These two events perhaps point to the beginning of the end of zero-COVID.’

Whilst good news from China normally supports AUD, it's possible investors are being cautious. Given the mixed signals China has sent global markets about their Covid protocol, AUD investors remained wary. An easing of restrictions could lead to a further surge in cases, with China’s vaccination rate and population immunity lower than in other countries.

Compounding this uncertainty was China’s Caixin manufacturing PMI for November. Although final figures edged higher, climbing from 49.2 to 49.4, manufacturing remained in contraction. This marked the fourth consecutive decline, suggesting that China’s economy is still facing challenges.

GBP/AUD Exchange Rate Forecast: Australian Retail Sales to Dent AUD?

Turning to Friday, the Pound Australian Dollar exchange rate could be impacted by Australian data.

Australia’s final retail sales figures from October are due out. The flash results revealed an unexpected fall of 0.2%. If the final results confirm this, or print lower, AUD could slip. However, if the finalised figures are revised higher, the ‘Aussie’ may gain ground.

Elsewhere, a speech from Reserve Bank of Australia (RBA) Governor Philip Lowe could move the ‘Aussie’. If he strikes a dovish tone, suggesting a softening approach to rate rises, this will likely weigh on AUD.

Turning to the Pound, a lack of significant data on Friday will likely see the currency trade on domestic news. Could UK optimism continue, thereby boosting GBP, or will downbeat domestic headlines hurt Sterling? If risk flows ease, then the Pound could face headwinds.

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