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Pound Australian Dollar (GBP/AUD) Exchange Rate Slips as Aussie Retail Improves

October 30, 2023 - Written by Tim Boyer


The Pound Australian Dollar (GBP/AUD) exchange rate weakened on Monday, following unexpectedly strong Australian retail data.

At the time of writing, GBP/AUD traded at around AU$1.9062, falling by just over 0.3% from Monday’s morning rates.

The Australian Dollar (AUD) strengthened over the course of Monday’s session, following unexpectedly strong retail sales data.

Retail sales smashed forecasts in September, showing growth of 0.9% as opposed to the expected 0.3% growth. This showed that consumer spending remained robust in Australia, despite elevated interest rates and high levels of inflation.

As such, it showed that the Reserve Bank of Australia (RBA) may have cause to continue tightening if needs be, as spending remains healthy and will likely contribute to cushioning the Australian economy.

However, as Taylor Nugent, a Senior Markets Economist at National Australia Bank, stated, it may not be enough for the RBA. He commented: ‘For the RBA, we don't think the November decision will turn on one monthly retail number, but today’s data is one more piece of evidence that the consumer remains resilient. Downside risks to household consumption have been a key focus of the RBA, but those do not look to have been realised so far.’

In any case, it contributed to strengthening the ‘Aussie’ over the session and worked in tandem with a cautiously upbeat market mood.

The Pound (GBP) endured underwhelming trade during Monday’s session, as a continued lack of data releases limited Sterling’s directionality.

Concerns over the state of the UK economy continued to swirl amongst investors due to this lack of data. These jitters have served to prompt investors to pare back existing interest rate hike bets for the Bank of England (BoE).

The BoE are now widely expected to leave rates unchanged at their upcoming meeting, which has served to sap sentiment toward Sterling.

The Pound may have seen a modest amount of support from Monday morning’s BoE consumer credit report. The report found that public borrowing had slowed on a monthly basis, falling from £1.681bn to £1.391bn.

This suggested that consumer borrowing has fallen, with higher interest rates taking less of a toll on household finances, which could prompt the UK economy to recover amid.

However, a wavering market mood ultimately served to keep Sterling downbeat, as investors remained cognisant of the continued conflict between Israel and Hamas.

Looking ahead for the Australian Dollar, the core catalyst of movement is likely to come during Tuesday’s early Asian session, wherein RBA Assistant Governor Brad Jones is due to deliver a speech.

With the RBA recently making hawkish communications, Assistant Governor Jones stands to boost the ‘Aussie’ if he follows suit with a hawkish speech. Another interest rate hike appears to be on the cards before the end of the year, and further indications may prompt renewed bets, lifting AUD exchange rates.

This is followed on Tuesday by the final manufacturing PMI for October’s activity. If this prints in line with the flash reading, the Australian Dollar could see any gains trimmed as it confirms further weakness in the sector.

For the Pound, meanwhile, the data calendar is set to lighten over the next few days. Because of this, jitters ahead of the Bank of England’s interest rate decision may mute Sterling’s movements.

With investors anticipating the BoE to keep its tightening cycle paused, Sterling may be unable to catch many bids in the immediate future.

Elsewhere, risk appetite is likely to play a role in shaping the Pound Australian Dollar exchange rate. If the market mood sours, AUD may weaken due to its riskier nature than Sterling.
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