GBP/AUD: Dip buyers minimise GBP losses after retail sales

The British pound is lower against the Australian dollar on Friday as well-received China growth data spurred demand for the Aussie and the pound suffered from another monthly decline in UK retail sales.

GBP/AUD was lower by 8 pips (-0.04%) to 1.8944 as of 2pm GMT, with the currency pair rebounding from daily lows to finish just off its highs for the week. 

The pound

The trend throughout the week has been one of stubborn strength in the pound in the face of data showing the British economy is weakening. Price action on Friday in reaction to the release of UK retail sales data was like the response to UK inflation data earlier in the week. That is one of initial declines met by dip-buying to take the currency close to where it started.

UK retail sales fell by -0.6% in December, completely missing expectations for a 0.7% rise. The data, released by the Office for National Statistics (ONS) marked the fifth consecutive monthly decline, the longest since records began in 1996. The UK General Election held on December 12 was a mitigating factor that perhaps goes some way to explain the weakness of UK consumption during the month.

Even so, after five monthly declines, the Bank of England, if comments over the past week are any indication, is paying attention. Policymakers have begun laying the groundwork through public speeches for a possible interest rate cut, perhaps as soon as January. Extra import can be attached to day’s data since there are only a few big economic data releases until the BOE make their decision on January 30 and then a day later Britain leaves the EU on January 31.

The Australian dollar

The Australian dollar gain ground early on Friday after well-received China GDP data, although  gave much of it back in later trading. Australia exports a lot of raw materials to China and so benefits when China’s economy is doing well. China GDP grew at annual pace of 6.1% in 2019 and at a moderately slower 6.0% during the fourth quarter. It marks a slowdown from the 6.6% in 2018 but keeps growth within the target range set out by the Chinese government.

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