Pound To Australian Dollar (GBP/AUD) Rate Climbs As Coal Prices Weigh On Aussie

The Pound Australian Dollar (GBP/AUD) exchange rate climbed on Monday, as AUD succumbed to cratering coal prices.

At the time of writing, GBP/AUD traded around AU$1.7504, showing a decline of roughly 0.3% from Monday’s morning rates.

Australian Dollar (AUD) Exchange Rates Sink as Coal Prices Slide

The Australian Dollar (AUD) struggled for demand on Monday, as coal prices began to crater. Australia’s primary export is coal, and the dramatic fall in price served to undercut positivity around the country’s renewed trade links with China.

Coal became Australia’s largest export over iron ore in recent times, with the currency moving towards a tie to its prices. At the time of writing, coal prices traded at around $266, a decline of around 26% from Monday’s opening rates. As such, the news that orders had been placed by approved Chinese businesses had begun to make their way to China was undercut by the sharp slump.

Pushing the ‘Aussie’ lower may have been the cautious market mood which permeated throughout Monday’s session. Due to the Australian Dollar’s particularly risk sensitive nature, this saw AUD exchange rates fall against safer options.

However, the Australian Dollar may have been underpinned by ever present rate hike bets from the Reserve Bank of Australia (RBA). Recent inflation data pointed to further room for tightening from the RBA, which could be lending the ‘Aussie’ minor support and may have prevented further losses.

Pound (GBP) Exchange Rates Weighed Down by Cautious Market Mood

The Pound (GBP) struggled for support during Monday’s session, as a cautious market mood and thin trading conditions sapped sentiment towards Sterling.

As an increasingly risk sensitive currency, the downbeat market mood appeared to keep investors away from Sterling, as they favoured safer options.

This contrasted against persistent bets of a 50bps interest rate hike from the Bank of England (BoE). With the UK’s labour market remaining persistently tight and inflation remaining sky high, the impetus on the BoE to reduce inflation remains.

Speculation that the BoE will enact a slowdown of tightening after Thurday’s hike remains a weight on Sterling however, alongside political turmoil within the UK government.

On Sunday, Conservative Party Chair Nadhim Zahawi was sacked, after being found guilty of numerous, serious breaches of ministerial code. As such, investors may be wary of fresh volatility within the UK government, wishing to avoid a repeat of 2022’s chaos.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: BoE Borrowing and Mortgage Data to Dent GBP?

Looking ahead for the Pound (GBP), Tuesday sees the release of the Bank of England’s (BoE) consumer credit data and mortgage approvals data for December. Both of these sets of data are forecast to fall, with consumer borrowing falling from £1.507bn to £1.2bn and mortgage approvals from 46075 to 43000.

These releases could weigh on GBP by illustrating the recession’s impact on UK households. Borrowing is at elevated levels, due to the cost of living squeeze on UK consumers, while the drop in mortgage approvals points to a downturn in the housing market – a classic signifier of recession.

For the Australian Dollar (AUD), the currency’s nature as a Chinese proxy may be the core driver of movement in the short term. Early on Tuesday, the NBS PMIs for manufacturing and services for January are due to print. Both are expected to show that China’s private sector remains in contractionary territory, but both are also forecast to show a reduction in slowdown and point to a further recovery.

As such, AUD may benefit from this optimism around the Chinese economy. This could then be further compounded by the Caixin manufacturing PMI on Wednesday morning, which is forecast to show an improvement from 49 to 49.5.

Elsewhere, risk appetite may be another contributor to movement for the pairing. If the market mood shifts towards risk-on trade, AUD may strengthen over GBP due to its more risk sensitive nature.