GBP AUD Looks to Continue the Recent Recovery

GBP AUD Consolidates with UK Employment Due

The GBP AUD exchange rate was higher for a second week as the pound sterling looks to shrug off Ukraine-related losses. Modelling has suggested that Australia could be amongst the biggest economic losers from a new cold war. Economic data for the week will hinge on the inflation numbers from Australia on Tuesday as the RBA could feel the heat from price pressures.

The GBP to AUD was pressing the 1.7722 level with resistance ahead at 1.7900 and 1.8100.

Australia could lose out in prolonged war due to trade reliance

If tensions between the West and China and Russia led to a split into two separate financial and trading systems, Australia would be among the worst hit.

The Conversation analysed the numbers earlier this year for the West Australian Governor’s Strategic Foresight Dialogue. At the time the possibility of a new “bamboo curtain” with China, Russia and their allies, and the “West” led by the United States on the other, was academic.

The group modelled the short-term effects of an end to trade and investment flows across a curtain which leaves the Western economies on one side and China and the rest of the world on the other. Proportionately, the negative effect on Australia would be bigger than the rest of the world, due to Australia’s relative affluence and dependence on trade.

The model also suggested half a billion workers would lose their jobs worldwide, including one fifth of employed Australians. The worth of financial assets would fall by one fifth, and by one quarter in Australia. Australia’s commodity export prices would fall 6.9%, while Australia’s import prices would climb, by as much as 13.2%.

Western Australia would be by far the worst affected Australian state, because it depends on exports for 61% of its gross state product, compared to 24% for Australia as a whole.

UK government looks to secure US trade deals

On the UK trade front, the government is seeking to sign a series of ‘mini’ trade deals with the US. Trade minister Penny Mordaunt commented, saying:

“The first eight deals we’re going to sign represent about 20% of the US economy. This is big stuff – it will reduce costs for business, it will open up new opportunities for UK businesses and make it easier for them to actually provide services and goods to the US.”

The United States administration are hesitant to sign a wider trading pact, but the deals will open up much of the US to British businesses.

Tuesday will see the release of Australian inflation figures, which could spark life into the exchange rate. Economists expect the latest figure to jump from 3.5% to 4.6% and analysts see an RBA rate hike after the election in May.

Meanwhile, Prime Minister Boris Johnson told negotiators to get a free trade agreement signed with India by Diwali in October as he celebrated a “massive push” during a meeting with Narendra Modi in New Delhi on Friday.