Pound Australian Dollar Exchange Rate Soars As Aussie Jobs Data Dents RBA Bets

The Pound Australian Dollar (GBP/AUD) exchange rate hit a three-week high on Thursday morning as the ‘Aussie’ suffered heavy selling pressure following a downbeat jobs report.

At the time of writing, the GBP/AUD exchange rate was trading at around AU$1.7927, 0.8% up since that morning’s opening levels.

Australian Dollar (AUD) Exchange Rates Tumble amid Downbeat Jobs Data

The Australian Dollar (AUD) was weak on Thursday morning following a disappointing Australian labour market report overnight.

The latest jobs data revealed that the unemployment rate was not as low as previous expected. The rate printed at 3.5% in December, just above forecasts of 3.4%, while the previous month’s jobless rate was revised up from 3.4% to 3.5%.

Meanwhile, employment unexpectedly declined by 14,600, rather than rising by 22,500 as was expected.

Adding to the downbeat picture, the participation rate unexpectedly declined from 66.8% to 66.6% as more people left the workforce. A drop in the participation rate often pulls the unemployment rate lower, so the fact that the latter printed above forecasts despite falling participation caused concern.

The Australian economy has fared fairly well amid the ongoing global pressures of high inflation and rising interest rates. However, the latest data may be an early indication that the Australian jobs market is starting to falter, which in turn may prompt a more cautious stance from the Reserve Bank of Australia (RBA).

The RBA has slowed its pace of policy tightening at recent meetings, opting for smaller quarter-point rate hikes. Following the jobs data, market expectations for another rate hike diminished from 61% probability to 48%, with markets now seeing a 52% chance that the RBA will leave interest rates unchanged.

This change in expectations triggered a repricing in the Australian Dollar, seeing it slip against many of its peers.

Pound (GBP) Exchange Rates’ Momentum Slows after CPI-Inspired Rally

Meanwhile, the Pound (GBP) was somewhat subdued on Thursday morning as GBP investors took a breather following Wednesday’s rally.

Sterling surged on Wednesday after the UK’s latest consumer price index showed that headline inflation remains in double digits and core inflation seems stickier than expected. This in turn boosted Bank of England (BoE) interest rate rise bets, thereby lifting the Pound.

The UK currency looked more muted on Thursday as a lull in economic data left GBP without much impetus, and this may have capped Sterling’s gains against the weakening ‘Aussie’.

A thoroughly downbeat mood in global markets did seem to be assisting the safer Pound against the riskier Australian Dollar, however. Abysmal US retail sales data for December on Wednesday afternoon triggered widespread risk aversion in markets, which continued into Thursday’s trade, giving GBP/AUD further fuel.

GBP/AUD Exchange Rate Forecast: UK Retail Sales Data to Lift Sterling Higher?

Looking ahead, a lack of Australian economic data could lead AUD investors to focus on the People’s Bank of China’s (PBoC) loan prime rate decision.

As the Australian economy is so closely linked with China, the ‘Aussie’ Dollar often trades as a proxy for the Chinese economy. As a result, Chinese economic data can influence AUD exchange rates.

The PBoC is expected to hold the loan prime rates steady. However, if the bank chooses to cut rates to spur on economic growth, this could see the Australian Dollar strengthen.

As for the Pound, the UK’s retail sales data for December is the focus for GBP investors on Friday. Economists expect UK retail sales to have recovered over the Christmas period, with sales growth returning to positive territory at 0.5% following November’s unexpected 0.4% decline.

If the sales data prints as forecast, Sterling could gain some ground. However, any signs that sales were weaker than usual over the important holiday trading period could reignite fears about the UK’s bleak economic outlook.