GBP AUD at Pivotal Point as Tensions Rise between Australia and China 

The GBP AUD exchange rate fell for most of the week with weaker economic outlook for the UK and the Bank of England (BoE) forecasting a recession in Q4 2022.

The BoE raised its inflation outlook to 13% for the British economy, which will continue to strain the economic outlook. Data from Nationwide saw a plateau in UK house prices which may be the start of a correction.

Meanwhile, Australia angered the Chinese embassy with its comments over the Taiwan military drills.

The GBP to AUD rate opens the week at 1.7465, with support for the year at 1.72.

Australia and Beijing clash over Taiwan US visit

Australia and China ended their short-lived period of amicable relations with tension over the US diplomatic visit to Taiwan.

China hit back at Penny Wong after criticising the country for firing ballistic missiles over Taiwan. The country ramped up its military exercises after a US diplomatic visit to Taiwan, which it claims jurisdiction over.

Foreign Minister Wong said China’s response was “disproportionate and destabilising”.

The Chinese embassy in Canberra responded that it was deeply concerned and strongly unhappy with the foreign ministers of Australia, Japan and the Secretary of State of the US comments on the situation across the Taiwan Strait. The embassy added that it was not acceptable for “finger-pointing” on China’s actions to safeguard state sovereignty and integrity, resolutely opposing and sternly condemning the remarks.

Australia has had a hostile relationship with its key trading partner after joining calls for an enquiry into the origins of the coronavirus.

When tensions rise between Australia and China, Australian Dollar weakness arises. China is responsible for 35-40% of Australian exports. As a result, these issues can start to weigh heavily on the Australian Dollar if not resolved swiftly.

Halifax housing price data points to a potential UK slowdown

According to Halifax, UK house prices fell for the first time since June 2021.

Experts warned of a potential slowdown from the rise in interest rates, which could start a protracted downturn for the UK housing market.

The average price of a UK home was £293,221 in July, which dipped by 0.1% month on month, marking the first drop since June 2021.

The latest drop saw the annual rate of growth dip from 12.5% to 11.8%, although the average house price remains more than £30,000 higher than last year.

Russell Galley, managing director at Halifax urged not to read too much into any single month, mainly as the fall was only fractional, and a slowdown in annual price growth was anticipated for a considerable amount of time.

He added that leading indicators of the housing market revealed a softening of activity while rising borrowing costs further squeezed household budgets. Looking ahead, house prices will likely come under additional pressure as market tailwinds fade and headwinds of rising interest rates and increased living costs take a stronger hold. As a result, a slowing of annual house price inflation continues to be the most likely outcome.

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Source: https://www.poundsterlingforecast.com/2022/08/gbp-aud-at-pivotal-point-as-tensions-rise-between-australia-and-china/