GBP/AUD News: Pound Australian Dollar Exchange Rate Stumbles as Risk-On Mood Lifts the ‘Aussie’

February 16, 2023 - Written by John Cameron

STORY LINK GBP/AUD News: Pound Australian Dollar Exchange Rate Stumbles as Risk-On Mood Lifts the ‘Aussie’

After volatile trade overnight, the Pound Australian Dollar (GBP/AUD) exchange rate slipped lower on Thursday morning amid an upbeat market mood.

At the time of writing, GBP/AUD was trading at around AU$1.7409, having briefly touched a high of AU$1.7493 overnight.

Australian Dollar (AUD) Firms amid Risk-On Mood, despite Jobs Data Miss

The Australian Dollar (AUD) experienced some turbulence overnight amid a knee-jerk reaction to the latest Australian economic data.

First of all, we had the latest raft of employment data, which missed forecasts. The Australian unemployment rate unexpectedly rose from 3.5% to 3.7%, although markets had expected it to hold steady.

This rise was partially due to a drop in participation, as more Australians left the workforce.

However, it was also due to a genuine decline in employment. The employment change figure printed at -11,500, rather than 20,000.

This latest data release could indicate that the strength of the Australian labour market is starting to fade, which would be bad news for the country’s economy and may prompt less aggressive action from the Reserve Bank of Australia (RBA).

The ‘Aussie’ slumped dramatically when this data was released, only to recoup all its losses not long after.

One reason for this might be that the initial reaction was hasty, as seasonal factors could have explained some of the surprise drop in January’s employment.

Bjorn Jarvis, Head of Labour Statistics at the Australian Bureau of Statistics (ABS) – who published the data – said:

‘January is the most seasonal time of the year in the Australian labour market, with people leaving jobs but also getting ready to start new jobs or return from leave.

‘This January, we saw more people than usual with a job indicating they were starting or returning to work later in the month.’

The rebound in AUD also came despite an unexpected easing in consumer inflation expectations, which could have further dampened RBA bets.

A cheery market mood lifted the risk-sensitive Australian Dollar from then on, with sentiment continuing to improve into the European session on Thursday morning.

Pound (GBP) Subdued as Post-CPI Headwinds Linger

Meanwhile, the Pound (GBP) licked its wounds following Wednesday’s soft CPI reading.

The UK’s latest CPI revealed a larger-than-expected cooldown in inflation, triggering a selloff in Sterling as markets pared back Bank of England (BoE) interest rate rise bets.

On Thursday, Sterling was trying to crawl back up against some of its safer peers amid the risk-on mood, but GBP lacked any real support.

This left it vulnerable to losses against its riskier counterparts, such as the ‘Aussie’ Dollar.

GBP/AUD Exchange Rate Forecast: Sterling to Slump as UK Sales Contract?

Looking ahead, RBA Governor Philip Lowe is due to speak on Thursday night. Recently, the central bank chief has taken a more hawkish stance. Could the recent poor employment data temper his tone somewhat? If so, AUD could face selling pressure.

Risk appetite is also likely to continue to impact the ‘Aussie’. With growing geopolitical concerns about China-US and Russia-Ukraine tensions, along with fresh fears of more Federal Reserve interest rate rises, the market mood could sour. The Australian Dollar will likely be susceptible to any shifts in risk appetite.

On Friday, the UK’s January retail sales figures are in focus. Economists expect sales growth to have shrunk again last month, contracting 0.3% after a 1% slump in December. Such a result could see Sterling drop, as it would likely raise recession fears. With the cost-of-living crisis biting, consumers are cutting back on spending and retailers are suffering.

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TAGS: Australian Dollar Forecasts Pound Australian Dollar Forecasts