Pound Australian Dollar (GBP/AUD) Exchange Rate Weakens as UK Economic Anxieties Intensify

January 11, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Weakens as UK Economic Anxieties Intensify

Pound Australian Dollar (GBP/AUD) Exchange Rate Stumbles as UK Economic Anxieties Flare

The Pound Australian Dollar (GBP/AUD) exchange rate fell on Wednesday, as economic anxieties in the UK continued to flare.

At the time of writing, GBP/AUD traded at around AU$1.7579, a fall of 0.3% from Wednesday’s opening rates.

Pound (GBP) Slips as Economic Anxieties Continue to Flare

The Pound (GBP) weakened against most major peers on Wednesday, as economic anxieties continued to bubble over. Thin trading conditions exerted further pressure on the Pound, as investor attention shifted to these concerns.

The UK’s housing market is expected to endure a ‘marked slowdown’ in the coming months. The largest UK house builder Barratt has pointed to falling mortgage approvals and tumbling prices as evidence for the decline.

Currently, the firm has begun to freeze hiring and scrapped proposals for over 3000 plots, while investors and sector analysts are expecting further turbulence in 2023 due to the UK’s economic downturn.

David Thomas, the Chief Executive of Barratt, commented on the situation. He stated:

‘Political and economic uncertainty impacted the first quarter; this was then compounded by rapid and significant changes in mortgage rates which reduced affordability, homebuyer confidence and reservation activity through the second quarter.’

Furthermore, industrial action in the UK continues to be a concern for GBP investors. Following a recent breakdown in talks between union leaders and government ministers, unions have begun to consider a joint day of strike action across the sectors.

At a time of recession, the ever-present cost-of-living crisis, the strikes add an extra blow to the UK’s already bleak economic outlook.

Australian Dollar (AUD) Capped as Inflation Returns to Expected Highs

Beyond gains made against the Pound, the Australian Dollar (AUD) saw its gains capped during Wednesday. Inflation during November returned to previous heights following a surprise dip in October’s figures, hitting 7.3% up from 6.9%.

Michelle Marquardt, the Australian Bureau of Statistics (ABS) Head of Prices Statistics, explained:

‘The Housing group was the main contributor to the annual increase in the November monthly CPI indicator. High labour and material costs contributed to the annual rise in new dwelling prices (+17.9 per cent) although, the rate of price growth for new dwellings has eased compared to the 20.4 per cent annual rise seen in October.’

This uptick in inflation served to cap the gains prompted by an increase in retail sales. During November, retail sales in Australia rose from 0.4% to 1.4%, far beyond forecasts of an uptick to 0.6%.

This resilience in the retail sector, combined with the uptick in inflation, could set the stage for continued interest rate hikes from the Reserve Bank of Australia (RBA), especially as interest-sensitive categories – such as new homes – appeared to have fallen in appeal.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: Chinese Inflation to Boost AUD?

Looking ahead for the Australian Dollar (AUD), China’s latest inflation data is due to print on Thursday. Due to the ‘Aussie’s nature as a Chinese proxy-currency, the forecast of an uptick in inflation could bring support for AUD. The increase in inflation may indicate that the economic superpower is avoiding entering deflation territory, which could lift the Australian Dollar.

Furthermore, Thursday also brings the release of November’s balance of trade data. Australia’s trade surplus is forecast to post a fall from AU$12.217bn to AU$10.5bn, which could dampen the appeal of the ‘Aussie’. With Australia’s economy being heavily based on trade, this fall could point to weakness and lead to a fall in AUD exchange rates.

For the Pound, ahead of Friday’s data release trading conditions are likely to remain thin. As such, risk sentiment and domestic headlines are likely to continue shaping the Pound’s direction through Thursday. A move to risk-on trade could bring support to the increasingly risk sensitive Pound.

Friday brings the release of the UK’s GDP data for November. The monthly reading is expected to fall from 0.5% to -0.3%, reflecting the UK’s recession. As such, this may weaken the Pound by demonstrating the current weakness of the UK economy.

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