The exchange rate experienced a downturn today, impacted by strong Australian retail data and concerns about the UK economy. This follows last week’s dip in the currency pair due to disappointing UK labor market indicators and anticipation of a rate hike by the Reserve Bank of Australia (RBA).
Australia’s robust retail data, indicative of solid consumer spending despite high inflation and interest rates, bolstered the Australian Dollar (AUD). Taylor Nugent from National Australia Bank (OTC:) suggested that this could lead the RBA to sustain its tightening policies. The British Pound (GBP), on the other hand, struggled due to a dearth of data, sparking investor apprehension about the UK economy and diminishing expectations for a Bank of England (BoE) rate hike.
The BoE’s consumer credit report indicated a deceleration in public borrowing, which might aid the UK economy’s recovery. However, Sterling remained low due to factors such as the Israel-Hamas conflict and overall market sentiment.
Anticipation of a pause in BoE’s tightening cycle, a future hawkish speech from RBA Assistant Governor Brad Jones, and recent hawkish indications from the RBA suggesting another interest rate hike could further influence the GBP/AUD exchange rate. The performance of AUD may also be affected by October’s manufacturing Purchasing Managers’ Index (PMI). Given its riskier nature compared to Sterling, AUD may weaken if the market mood turns sour.
Last week saw the GBP/AUD exchange rate reach a five-week high amidst an anxious market mood, only to face pressure due to contractions in the UK’s manufacturing and service sectors. A high inflation reading midweek in Australia pushed AUD to a three-week high against GBP. This momentum was momentarily weakened by RBA Governor Michele Bullock’s indifferent stance on the inflation surge until Westpac forecasted a November RBA rate hike, restoring AUD’s strength.
Simultaneously, the Confederation of British Industry’s (CBI) distributive trades survey revealed the worst October reading since 2017 for UK sales data, further dampening GBP. Key events to watch include the BoE interest rate decision and Australia’s September trade surplus, both of which could cause AUD fluctuations. Additionally, a dovish decision by the Federal Reserve could alter the market mood and subsequently impact AUD.
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