Pound Australian Dollar (GBP/AUD) Exchange Rate Strengthens as Profit Taking Dents AUD

May 3, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Strengthens as Profit Taking Dents AUD

Pound Australian Dollar (GBP/AUD) Exchange Rate Strengthens as Profit Taking Dents AUD

The Pound Australian Dollar (GBP/AUD) strengthened on Wednesday, as the Australian Dollar (AUD) was stricken by profit taking. Furthermore, the market mood appeared to favour GBP.

At the time of writing, GBP/AUD traded at around AU$1.8781, a rise of roughly 0.4% from Wednesday’s opening rates.

Australian Dollar (AUD) Stricken by Profit Taking

The Australian Dollar (AUD) weakened against most peers during Wednesday’s session, as the ‘Aussie’ lost its impressive post rate hike gains.

AUD investors appeared to be enacting profit taking, and pushed AUD to be repriced against its peers. This followed a surprise 25bps interest rate hike from the Reserve Bank of Australia (RBA).

This profit taking appeared to undermine an increase in the Judo Bank services PMI, which saw the final reading come in above initial forecasts.

Warren Hogan, Chief Economic Advisor at Judo Bank, commented: ‘The overall economic slowdown appears to be over. I would like to see another month of strength before drawing a strong conclusion, but the implications appear clear; the RBA may have more work to do if they wish to get inflation back down to their 2% to 3% target.’

As indicated by Warren Hogan, the data supports room for a further interest rate hike from the RBA if needed, further down the line. However, this appeared to fall on uninterested AUD investors.

Elsewhere, a mixed market mood may have played a hand in undercutting the ‘Aussie’ during Wednesday’s session. As a risk sensitive currency, AUD is more susceptible to these shifts in market mood.

Pound (GBP) Supported by Cautiously Cheery Trade

The Pound (GBP) was supported by cautiously optimistic trade during Wednesday’s session. This mood carried across the markets in the early European session, and allowed GBP investors to shrug off a lack of macroeconomic data releases.

The mood was in flux as investors anticipated the Federal Reserve’s latest interest rate decision, with the prospect of Wednesday’s hike being the final cheering investors as it may bring less pressure to global economic growth.

Elsewhere, optimism over new measures outlined by the Financial Conduct Authority (FCA) could have brought tailwinds to Sterling. The FCA announced a series of new measures designed to entice companies to float on the London Stock Exchange.

The FCA stated in its announcement that: ‘The proposed changes aim to provide a simpler and more accessible UK listing regime for companies, improving the attractiveness of listing in the UK and providing a wider range of investment opportunities for investors.’

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: AU Balance of Trade to Dent AUD?

Looking ahead for the Australian Dollar (AUD), the main driver of movement may come from the latest balance of trade data. Reflecting March’s trade, the balance is due to print overnight and is forecast to show a decrease in Australia’s trade surplus.

This could weigh on the ‘Aussie’ due to the Australian economy’s reliance on exports and trade with other countries. A decreased surplus could point to a fall in exports, which may weaken AUD.

This is swiftly followed by the release of the latest Caixin manufacturing PMI. Activity in China’s manufacturing sector is forecast to have ticked upward to 50.3 in April.

If this prints accurately, it could bring support to the ‘Aussie’, due to its nature as a Chinese proxy currency. Similarly, an uptick in manufacturing could lift prices for certain materials, as demand may be increasing. With coal and iron ore being key AU exports, price rises here may strengthen AUD.

For the Pound (GBP), data releases continue to be thin on the ground through to the week’s end. Because of this, Sterling is likely to remain vulnerable to external factors, such as market sentiment. As an increasingly risk sensitive currency, a souring market mood could weigh on GBP. However, as the ‘Aussie’ is more susceptible to risk, Sterling could strengthen against it.

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