The GBP AUD exchange rate was higher by 0.20% in the Asian session, but the move is a small bounce in the ongoing Aussie dollar recovery. The pound peaked on August 20th and the Australian dollar has found support with an earlier than expected reopening. The latest inflation reports from the Australian economy also led traders to consider that Australia could follow its neighbour New Zealand with a rate hike.
AUD GBP exchange rate is trading at 1.18355 and Rishi Sunak will also deliver his Autumn UK budget today.
Australian economy could see 3% drop
Australia’s economy is expected to have shrunk “around 3%” in the September quarter as the government lockdowns hit the economic rebound.
Two-thirds of the population was locked down at the start of August, according to the Treasury secretary, Steven Kennedy’s estimates.
“From July to September this year employment fell by 2.2%,” Kennedy said. “Business and consumer confidence has also declined, owing to heightened uncertainty, but remains much higher than the record lows reached in 2020.”
“Somewhat surprisingly, there’s little commentary about the significance of this potential contraction in economic activity,” he added. “Our assessment is that it mostly reflects the effectiveness of past and current fiscal interventions.”
The massive build-up in savings by both households and businesses provides some degree of comfort during the recovery phase, Kennedy continued.
“Household and non-financial business deposits are almost $330bn higher compared to the end of 2019. Household cash savings were up $145bn compared with the end of August 2020.
“The run-up in household and business balance sheets provides resilience and will continue to support activity throughout the recovery,” Kennedy said.
Sunak budget disappoints sterling bulls
The UK Chancellor Rishi Sunak unveiled his Autumn budget on Wednesday and pound sterling traders pulled were not seeing a reason to get long.
Sunak was boosted by lower-than-expected public borrowing figures last week and the OBR also upgraded UK growth to 6.5% this year in the latest report. It was also said that the damage to the economy is only 2% from pre-virus highs, after previous assessments of 3%.
Traders are worried that there were too many new commitments in the budget with £150 billion in new spending that is said to “level up,” or “Build Back Better,” but really adds to the fiscal hole that the UK is in.
Some were also worried that the Chancellor didn’t address the key problems of Labour shortages and inflation.
Ian Wright, chief executive of the Food and Drink Federation said of inflation:
“In hospitality, which is a precursor of retail, inflation is currently running somewhere between 14 per cent and 18 per cent,” Wright told the committee. “I was at university in 1977. I remember inflation going to 27 per cent under the Callaghan Government, and I remember the lady going around in Sainsbury’s with stickers twice in the same hour to change the prices again and again. We really cannot go back to that. It is terrifying for us.”
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