Pound Australian Dollar (GBP/AUD) Exchange Rate Strengthens as Australian Labour Marker Cools

January 19, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Strengthens as Australian Labour Marker Cools

Pound Australian Dollar (GBP/AUD) Exchange Rate Rises as Australian Labour Marker Softens

The Pound Australian Dollar (GBP/AUD) exchange rate strengthened on Thursday, as the Australian labour market showed signs of cooling. This in turn prompted investors to drastically scale back their bets for further rate hikes, causing AUD to fall.

At the time of writing, GBP/AUD traded at around AU$1.7913, an increase of roughly 0.7% from Thursday’s morning rates.

Australian Dollar (AUD) Weakens as Labour Data Pares Back Rate Hike Bets

The Australian Dollar (AUD) weakened significantly on Thursday morning, following the release of the December’s labour market data.

The normally resilient labour market began to sour somewhat, with net employment falling by 14,600 in December from November, missing the forecast of an increase of 22,500. This marked the first drop in employment since July 2022, and pointed to signs of Australia’s labour market beginning to cool after its borders were reopened for migrant workers.

However, fulltime employment and the unemployment rate remained robust, with the unemployment rate remaining at an upwardly revised 3.5%, still orbiting historic lows.

Due to the mixed picture, investors began to pare back their expectations for interest rate hikes from the Reserve Bank of Australia. The potential cooldown in the labour market appears to be spooking investors, as further interest rate hikes would exacerbate this issue. Currently, bets for an increase to 3.35% have fallen to 48% across investors.

Elsewhere, concerns over a further spread of Covid in China may be keeping a lid on the ‘Aussie’ due to its status as a Chinese proxy-currency.

Chinese President Xi Jinping warned that the mass migration over the Lunar New Year holiday could cause Covid cases to rise further, as families travel across the country to visit relatives in more rural locations where vaccinations were less common.

Furthermore, a risk averse market mood is likely adding further pressure to the risk sensitive Australian Dollar, as fears over a global recession continue to intensify.

Pound (GBP) Struggles as Domestic Headwinds Limit Appeal

The Pound (GBP) struggled for demand against safer peers on Thursday, as a lack of macroeconomic data releases left Sterling vulnerable to ever present domestic strife.

Industrial action is continuing across the UK, with nurses currently on strike across the country. Teachers are due to strike at the beginning of February, with unions continuing to examine coordinated strikes.

With these walkouts already having a sizeable impact on the UK economy, further action is likely keeping investors away from the embattled Pound. Furthermore, a government minister stated that the cost of rail strikes had exceed £1bn, and suggested it would have been far cheaper to settle with the striking workers.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: UK Retail Recovery to Boost GBP?

Looking ahead for the Pound (GBP), Friday brings the release of December’s retail sales data. Month on month sales are forecast to increase from -0.4% to 0.5%, which may boost Sterling by pointing to a recovery in the retail sector, and showing UK consumers are more able to spend. As such, this could bring hopes of a softer recession due to the UK economy’s lean on consumer spending.

Furthermore, it could spark hopes for further interest rate hikes from the Bank of England (BoE) by illustrating a resistant economy, despite previous warnings of recession.

For the Australian Dollar (AUD), thin liquidity is the name of the game through to the close of the week. No macroeconomic data is expected to release, meaning the ‘Aussie’ may be left vulnerable to domestic headlines or shifts in the market mood.

Due to the ‘Aussie’s risk sensitive nature, a move towards an upbeat, risk-on market mood could see it make gains against safer peers such as GBP. However, a souring market mood may drag AUD lower.

Elsewhere, China’s Lunar New Year celebrations may weigh on the Australian Dollar, due to its status as a Chinese proxy-currency. With China expected to essentially close as thousands of people migrate away from cities to see family, analysts and investors are hoping for a marked increase in consumption which could benefit the Chinese economy.

However, fears remain over increased Covid cases due to the residents of more rural areas being older and potentially unvaccinated. As such, further increases in cases would likely weigh on the Australian Dollar.

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TAGS: Pound Australian Dollar Forecasts