The GBP AUD exchange rate was 0.10% higher on Wednesday. The pound was higher despite better than expected retail sales down under.
The GBP to AUD rate vaulted above the 1.7700 level and has stiffer resistance at 1.7800.
Australian retail sales better than forecasts in May
Retail sales in Australia were better than expected with a 0.9% jump in May. That was the fifth-consecutive month where shoppers doubled estimates in the latest ABS figures.
The figures are defying recent gloom in consumer confidence but they may struggle later as interest rate rise filter through to the economy.
According to Bloomberg, Sales rose to a record A$34.2 billion for the month of May. This was a good early sign for the central bank’s confidence that consumption can hold up due to savings.
“Higher prices added to the growth in retail turnover in May,” said Ben Dorber at the ABS. “This was most evident in cafes, restaurants and takeaway food services and food retailing.”
The July meeting of the Australian Reserve Bank indicates interest rates rising again with a potential 50bps move to 1.35%.
HSBC warned that higher rates and rising interest rates could bring a threat of recession to the Australian economy.
ING sees medium-term drop in iron ore prices
The Australian dollar is weighed by volatile iron ore prices. ING analysts expect lower prices in the near-term.
“While we expect iron ore prices to be supported in 2H22 due to expectations of a recovery in China, the longer-term outlook for iron ore is more bearish. On the demand side, it appears that China will continue to cap crude steel output whilst also looking to replace older steel capacity with electric arc furnace capacity in order to help the country meet its decarbonisation goals. We have already seen China’s iron ore imports peak in 2020,” analysts at ING noted.
“More sluggish demand from China, combined with this supply growth, suggests that prices should trend lower in the medium to longer term. As a result, we see 62% Fe fines averaging $105/t in 2023 and $90/t in 2024. This is down from $138/t over 2H22.”
There are hopes that China will take some action with monetary policy and attempt to stimulate an economy, hurting from covid lockdowns.
The country said that it may pursue a zero-covid policy for up to five years. This would be an issue for the Aussie dollar.
In the UK, Rishi Sunak was urged to cut duty on fuel as prices remain elevated at record highs. A spokesperson for the AA motoring group said that current prices are ‘pump fiction’. They do not represent a recent cooling in wholesale prices.
Simon Williams at the RAC said: “We strongly hope pump prices have peaked for the time being and will now start to decrease in line with wholesale prices which reduced last week. That, however, is in the hands of retailers.”
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