The AUDGBP exchange rate was sharply lower on Wednesday morning with a drop of -0.37% after UK inflation came in slightly higher than expectations. Prices in the UK are rising as the economy moves towards a full reopening and that has traders pricing in further gains. Westpac Consumer sentiment in Australia was also lower and that has weighed on prices.
The AUD to GBP rate trades at a fresh yearly low at 0.5473 after the morning’s data releases.
UK unemployment rate lower
Westpac Bank’s Consumer confidence figure has fallen 4.8% for the month, with the Federal Budget showing no improvement to consumer confidence.
The number was disappointing as it retraced much of the 6.2% jump in April. The index is still strong for the year but there are signs of a slowing Chinese economy and that is affecting the price of the Aussie dollar.
Westpac’s Chief Economist, Bill Evans said: “The fall may also represent some disappointment in the Federal Budget as a very generous Budget was still unable to exceed the exuberant expectations of the community”.
The recent Australian budget saw giveaways for families as the government tried to get ahead of the upcoming elections in key states with an economic boost. The labour market was a positive indicator with consumers expecting the unemployment rate to fall in the year ahead, with the measure at the highest in a decade.
Housing was also an important feature with the index of house price expectations remaining strong.
UK inflation stronger with reopening
UK inflation figures were 1.5% higher for April compared to a year earlier with Britain’s economy rebounding from the latest lockdown and prices jumping for energy and clothing.
Headline consumer prices were sharply higher, with the figures doubling from 0.6% increase in April, compared to 0.3% in March. Employment numbers on Tuesday showed a similar acceleration in monthly activity.
Grant Fitzner, the Chief Economist of UK official data source, the ONS said:
“Inflation rose in April, mainly due to prices rising this year compared with the falls seen at the start of the pandemic this time last year. This was seen most clearly in household utility bills and clothing prices.”
The inflation numbers were not rising as fast as the US and traders were maybe slightly disappointed as the in-line reading puts the ball back in the court of the Bank of England. A faster increase in prices would have seen pressure on them to readjust their tapering expectations.
Some of the UK inflation gains are not only lockdown-related, with gas and electricity prices seeing an increase of more than 9% year on year, however energy traders have adjusted demand projections higher based on the reopening of western economies, while traders worry about China’s impact on the Australian economy.
The AUDGBP pair now has strong support ahead of the 0.5400 level, but a break below that level would open a potential move towards the lower 0.5000s.