The Pound to Australian Dollar exchange rate plummeted last Friday as Bank of England (BoE) rate cut bets undermined Sterling while the ‘Aussie’ strengthened on lower Fed rate hike expectations. The pair continued to trend with a downward bias on Monday, slipping from the week’s opening levels to a September low of 1.7284 before fluctuating around 1.73.
Pound (GBP) Limp on Bank of England News, Lack of Supportive Data
The Pound was largely driven by currency cross flows on Monday, with appetite for the currency diminished after last week’s Bank of England (BoE) news.
Despite generally solid ecostats from earlier in August, the Pound’s perceived recovery was unable to continue after last week’s session amid poor inflation stats and mixed job market figures.
The Bank of England’s September meeting proved to be the biggest undermining factor for Sterling trade after the bank’s minutes claimed that an uptick in August activity did not mean Britain’s economy would be stronger in the mid to long-term.
BoE policymaker Kristin Forbes also weakened the Pound on Friday with comments she made embracing the lower value of GBP and the potential of a weaker currency to lighten Britain’s account deficit and attract business.
On Monday, Sterling’s movement was mixed, but news that Rightmove’s yearly house price print had slipped from 4.1% to 4.0% did little to boost GBP demand.
Australian Dollar (AUD) Strengthens as Markets Edge Back Towards Risk
The Australian Dollar has struggled to maintain its strength in past weeks due to a market-wide focus on the US economy and US Dollar ahead of this week’s Federal Open Market Committee (FOMC) decision.
Analysts had been speculating on the possibility of a September Fed rate hike quite heavily. As long as the possibility existed, demand for risky currencies like the ‘Aussie’ was reduced.
However, risk-sentiment has gradually seeped back over the last week due to increased bets that a Fed rate hike is unlikely until December.
The ‘Aussie’ also held its ground on Monday as investors solidified their positions on the currency ahead of the Reserve Bank of Australia’s (RBA) latest meeting minutes – which will be published on Tuesday.
News that Glenn Stevens had stepped down as the RBA’s Governor and been replaced with Philip Lowe on Sunday may have also increased interest in the ‘Aussie’, with markets eager to see how Lowe handles his first week as Governor.
GBP/AUD Forecast: Fed Decision to Inspire Australian Dollar
Despite a lack of key ecostats due for publication this week, the Pound to Australian Dollar exchange rate still has a lot of potential for volatility – particularly after Wednesday’s Federal Open Market Committee (FOMC) decision.
The risk-correlated ‘Aussie’ could surge if the Fed maintains a dovish stance, as investors will look towards currencies with higher yield potential than the US Dollar – such as AUD.
There is also not much room for the Pound to make strong movement in either direction due to a lack of influential datasets.
Wednesday’s public sector net borrowing may influence Sterling slightly, but it is more likely that the Australian Dollar will drive GBP/AUD movement on the Fed’s interest rate decision as well as Australian publications like Tuesday’s RBA meeting minutes.