Pound Australian Dollar (GBP/AUD) Exchange Rate Slumps amid Further Evidence of UK Retail Downturn

January 26, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Slumps amid Further Evidence of UK Retail Downturn

Pound Australian Dollar (GBP/AUD) Exchange Rate Slides after UK Retail Data

The Pound Australian Dollar (GBP/AUD) exchange rate slipped on Thursday. The pairing came under pressure after the latest UK retail data pointed to a sharp drop in January’s sales volumes.

Additionally, the GBP/AUD exchange was pushed lower by market bets on further interest rate hikes from the Reserve Bank of Australia (RBA).

At time of writing the GBP/AUD exchange rate was at around AU$1.7414, which was down roughly 0.3% from that morning’s opening figures.

Pound (GBP) Falls amid Further Disappointing Data for UK Retail Sector

The Pound (GBP) slipped against many of its peers on Thursday. Disappointing data for the UK’s retail sector weighed on Sterling, as well as evidence of worsening business confidence.

According to data released by the Confederation of British Industry (CBI), January’s retail sales volumes fell at their fastest rate since April 2020. The slump came after a positive reading in December.

Martin Sartorius, Principal Economist at the CBI, said:

‘Retailers began the new year with a return to falling sales volumes, as the sector continues to face the twin headwinds of rising costs and squeezed household incomes.’

A slump in UK small business confidence also kept pressure on Sterling on Thursday. Confidence amongst small businesses in the fourth quarter of 2022 fell to -46, its lowest point since 2020. The data collected by the Federation of Small Businesses pointed to soaring energy costs and reduced consumer demand as key factors.

The Pound saw its losses limited by continued Bank of England (BoE) rate hike bets, however. A recent Reuters poll saw the majority of economists surveyed agreeing on a 50bps rate hike from the BoE at their next meeting.

Australian Dollar (AUD) Bolstered by RBA Rate Hike Bets

The Australian Dollar (AUD) firmed on Thursday. The ‘Aussie’ found support from bets on further interest rate hikes from the Reserve Bank of Australia. Additionally, positive signs from China’s economy also lent support to AUD.

The shift in bets on further action from the RBA came after above-forecast inflation figures on Wednesday. Fourth quarter inflation rose to 7.8%, a 33-year high. Economists had previously thought that the RBA may begin to slow its pace of policy tightening.

Sean Langcake, head of macroeconomic forecasting for BIS Oxford Economics, said:

‘While this is expected to be the peak in inflation in this cycle, the RBA's hawkish communications lead us to expect another rate rise in February, with another increase likely to follow in March.’

Some analysts believe that the rise in inflation was down to one-off factors and seasonal shocks, however. This tempered any RBA inspired gains for the Australian Dollar.

China’s continued post-Covid recovery also lent support to the ‘Aussie’ on Thursday. Experts are hopeful that the reopening of the country’s borders could foster fresh international deals.

Additionally, confirmation from Chinese President Xi Jinping of the country’s renewed focus on diplomacy bolstered AUD. Speaking on Thursday, Xi stated that ties between China was ‘making active efforts’ in ensuring good ties between China and Australia.

GBP/AUD Exchange Rate Forecast: Will Cooler PPI Dent RBA Rate Hike Bets and Weigh on AUD?

Looking ahead for the Australian Dollar, fourth quarter PPI figures could pull the ‘Aussie’ lower if they print as forecast on Friday. Evidence of cooling inflationary pressures could see markets pare back bets on further RBA rate hikes.

AUD could also be affected by news of any further Covid surges in China and shifts in iron ore prices.

The Pound will see no further data releases this week. Sterling could see movement off the back of BoE rate hike bets. Forecasts of a 50bps rate hike could continue to lend support to the Pound. On the other hand, a more cautious stance from the central bank could see losses for GBP.

The prospect of further industrial action in the UK could also dent confidence in the Pound.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Australian Dollar Forecasts