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Pound Sterling loses out to Australian and New Zealand Dollars as Global Risk Appetite Surges

November 16, 2023 - Written by Toni Johnson


The Australian and New Zealand dollars both benefitted from a surge in risk appetite following the benign US inflation data and the Australian dollar also drew support from the latest wages data.

Chinese data releases also triggered an element of optimism surrounding the economic outlook which also underpinned the Australian and New Zealand currencies.

Metals prices moved higher with iron ore prices at 30-month highs which will support the Australian currency.

AUD/USD posted 10-day highs at 0.6515 and close to 3-month highs.

NZD/USD posted even stronger gains to a 1-month high at 0.6040.

The Pound has also benefitted from a weaker dollar and gains in equity markets. Sterling support was, however dampened by the weaker-than-expected UK inflation data.

The Pound to Australian dollar (GBP/AUD) exchange rate retreated sharply to 1.9125 from highs of 1.9320 on Tuesday.

The Pound to New Zealand dollar (GBP/NZD) exchange rate also posted a sharp decline to weekly lows at 2.0635 from Tuesday highs at 2.0960.

Australian wages posted the largest increase on record last quarter as a sharp rise in minimum wages benefited millions of workers, while intense competition among employers also pushed up many individual pay deals.

Figures from the Australian Bureau of Statistics out on Wednesday showed its wage price index rose 1.3% in the September quarter, matching forecasts and the biggest quarterly rise in the 26-year history of the series

Annual pay growth picked up to 4.0%, from 3.6%, the highest since early 2009 and just above market expectations of 3.9%.

ANZ economists Catherine Birch and Madeline Dunk said the wages data was “a touch higher than consensus and the RBA’s forecast. We don’t expect today’s data will change the RBA’s thinking ahead of its December meeting where we expect the RBA to hold the cash rate at 4.35%.”

According to KPMG chief economist Brendan Rynne, the RBA would; “retain its tightening bias at its December rates meeting given the broad-based wage gains.”

The latest Chinese retail sales data reported an annual increase of 7.6% for October from 5.5% previously and above consensus forecasts of 7.0%.

Industrial production posted a 4.6% annual increase, slightly above expectations of 4.5%.

Louise Loo, lead economist at Oxford Economics, commented; “Retail sales in October was particularly strong, beating even our above-consensus estimates.”

She was still wary over the outlook; “At this juncture we are skeptical that the now-three consecutive months of strong retail sales data are pointing to a permanent upshift in consumers’ spending propensities.”

There are also still important concerns surrounding the property sector with real-estate investment declining 9.3% in the year to October from 9.1% previously.

Hao Zhou, chief economist at Guotai Junan International noted; “Clearly, the property sector remains a weak spot for the economy, which requires further support in the foreseeable future.”

HSBC expects further action by Chinese authorities; "With ongoing uncertainties highlighted by the property sector, we think Beijing will continue to step up support through both fiscal and monetary means."

UoB has reversed its call for AUD/USD losses; “The breach of 0.6440 has invalidated our view that AUD “is likely to trade with a downward bias to 0.6300.”

It added; “While upward momentum has increased after the sharp rally yesterday, AUD has to break above 0.6525 before a further sustained advance to 0.6585 is likely. There appears to be a high likelihood of AUD breaking clearly above 0.6525.”

HSBC, however, remains bearish on the Australian currency due to concerns over the global economy.

It notes; “slowing US growth would hardly be good news for the AUD, as it would likely combine with weakness in growth elsewhere to heighten global growth concerns and weigh on risk sentiment.”

Despite action from Beijing, HSBC added; “our base case remains that China's growth outlook will not be a supportive factor for the currency anytime soon.”
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