May 12, 2023 - Written by John Cameron
STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Firms as UK Dodges Recession
Pound Australian Dollar (GBP/AUD) Exchange Rate Firms as UK Dodges Recession
The Pound Australian Dollar (GBP/AUD) exchange rate firmed on Friday, as the UK was found to have avoided a recession in Q1.
At the time of writing, GBP/AUD traded at around AU$1.8715, a rise of roughly 0.2% from Friday’s opening rates.
Pound (GBP) Muted amid Mixed GDP Data
The Pound (GBP) saw tepid trade during Friday’s session, following the release of the latest GDP data. While the UK’s economy was shown to have avoided a recession in the first quarter, the wider picture was less optimistic.
The UK economy did expand in Q1 by 0.1%, which likely prevented Sterling from losing substantial ground. However, any gains made were likely trimmed by a bleak analysis.
Economists found that the figures meant the UK was the weakest performing economy out of the G7 territories since the Covid-19 pandemic broke out.
Furthermore, the UK economy contracted by a shock 0.3% in March, with the UK’s key services sector shown to be flagging. Car sales specifically were highlighted, which fell severely.
The ongoing cost of living crisis and poor weather over March were also considered to be drivers of the poor economic performance.
Elsewhere, diminished interest rate hike bets may also have capped the Pound. Thursday saw the Bank of England (BoE) deliver their expected 25bps hike, but the accompanying forward guidance appeared to ring dovish.
Australian Dollar (AUD) Weakens amid Risk Averse Trade
The Australian Dollar (AUD) weakened on Friday, as a bearish market mood weighed on the risk sensitive ‘Aussie’.
Following a disappointing set of Chinese inflation data on Thursday, the Chinese proxy currency has experienced heavy selling pressure which appeared to continue on through to Friday.
While Chinese inflation remains in cooldown as opposed to active deflation, it still prompted anxieties over the global economic outlook.
However, the ‘Aussie’ may have been cushioned from further losses by persistent bets on further tightening from the Reserve Bank of Australia (RBA). The RBA have made repeated comments in recent times that inflation must be brought down to their target rate in a reasonable timeframe.
Furthermore, reports circulated on Friday that the Chinese Foreign Minister is scheduled to visit Australia in July. With relations between the two countries continuing to thaw, the reports may provide some hope for AUD investors that trade may continue to strengthen.
Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: UK Unemployment Data to Boost GBP?
Looking ahead to early next week for the Pound (GBP), the core catalyst of movement is likely to come from Tuesday’s release of March’s unemployment and wage growth data.
The unemployment rate is forecast by economists to hold at 3.8%, which may bring cheer to GBP investors and spark further rate hike bets. With the UK labour market potentially remaining tight, there may be further room for additional tightening from the Bank of England.
However, any gains may be offset by the wage growth data. On a three-month average for the year, wage growth both with and without bonuses is expected to have cooled. With wage growth being highlighted as a key cause of inflation by the BoE, this may weigh on Sterling as it could lead to less need for additional rate hikes.
For the Australian Dollar, the Reserve Bank of Australia are scheduled to publish their latest meeting minutes on Tuesday.
As the RBA recently hiked rates unexpectedly, investors may keep a close eye on these minutes in anticipation for any further hawkish indications. If the minutes point to further hikes on the way, the ‘Aussie’ could rally.
Elsewhere, Chinese industrial production data is due to print on Tuesday morning. A sharp rise to 10.1% is forecast for April, which could bring strength to AUD due to its nature as a Chinese proxy currency.
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