The Pound Australian Dollar (GBP/AUD) exchange rate weakened on Tuesday as Chinese attempts to improve their covid policy cheered AUD investors.
At the time of writing, GBP/AUD traded at around AU$1.7845, a decline of roughly 0.7% from Tuesday’s opening rates.
The Australian Dollar (AUD) enjoyed strong gains against all major peers on Tuesday, as the ‘Aussie’s nature as a Chinese proxy-currency saw it buoyed by China’s moves to improve its Covid policy.
Following a wave of protests across China, which included clashes against security forces, over the increasing impact the zero-Covid policy was having on the economy and livelihoods, the Chinese government introduced a plan to increase vaccinations in over-80s and punish ‘overzealous’ officials.
As such, investors were cheered by the prospect that China could continue to reopen its in 2023.
Further supporting AUD may be comments from the Reserve Bank of Australia (RBA) Governor Phillip Lowe. He outlined his belief that the Australian economy had a strong possibility of a ‘soft landing’, which brought optimism to investors.
The Pound (GBP) strengthened against other, less risk-sensitive peers during Tuesday’s trade, following the Bank of England’s (BoE) reassertion that interest rate hikes would continue.
Catherine Mann, an external member of the BoE’s Monetary Policy Committee (MPC), indicated that rate hikes would continue unless a clear picture of falling inflation occurred.
Mann stated: ‘One of the things about market assumption was that it did contain some drift down from the peak. A humped profile. I think that is an accurate assessment of what the prospects for Bank rate are. That there will be a peak that will serve to temper medium-term inflation expectations, and at that point, we have the opportunity to pull back from that peak. So we’re really managing in my view, it’s critical to manage inflation expectations, and in order to do that you might have to be a bit more aggressive in the near term so that you can then pull back once you have tempered those medium term inflation expectations.’
She further warned that their were signs of high inflation becoming entrenched in UK businesses, opening the door for further tightening. This brought cheer to investors, who moved to support Sterling during the session.
However, GBP’s gains may have been capped by a weakening housing market. The fall in mortgage approvals is a clear sign of a slowing UK economy.
Looking ahead, Wednesday brings a spate of data for Australia. The Australian consumer price index is forecast to show an uptick from 7.3% to 7.4%. If this prints as expected, it may strengthen AUD by prompting further rate hike bets from the RBA.
Similarly, an increase in business confidence is expected. A return to optimism could increase the appeal of AUD on Wednesday.
However, a speech is scheduled for Wednesday by the RBA’s Head of Financial Stability, Jonathan Kearns. Should he continue the RBA’s dovish tone, AUD may slip.
For the UK, BoE Chief Economist Huw Pill is scheduled to speak on Wednesday. Investors will be watchful of any further monetary policy hints. Should Pill continue the BoE’s current hawkish demeanour, Sterling may firm.
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Pound To Australian Dollar Rate Weakens As China Tackles Covid – Exchange Rates UK
