Pound to Australian Dollar Exchange Rate Recovers Ground as BoE Rate Hike Odds Fluctuate, GBP AUD Forecast

Update: GBP/AUD Exchange Rate Benefits as Hawkish BoE Policymaker Comments Contract Carney

Comments from Bank of England (BoE) policymaker Michael Saunders helped the Pound to Australian Dollar (GBP/AUD) exchange rate to reverse its downtrend ahead of the weekend.

Demand for the Pound (GBP) picked back up as Saunders maintained a relatively hawkish stance on monetary policy, keeping alive hopes of a May interest rate hike.

With market risk appetite generally limited support for the Australian Dollar (AUD) remained generally limited, on the other hand.

Pound Australian Dollar (GBP/AUD) Exchange Rate Slumps on Dovish Carney Comments

Fresh pressure was in store for the Pound to Australian Dollar (GBP/AUD) exchange rate on Friday, after Bank of England (BoE) Governor Mark Carney took a surprisingly dovish tone in a speech.

Markets were caught off guard as Carney talked down the prospect of a May interest rate hike, undermining the 90% odds which investors had already priced into the Pound.

Indicating that market expectations are largely overblown, Carney commented:

‘I don’t want to get too focused on the precise timing, it is more about the general path.’

This left GBP exchange rates on a generally weaker footing ahead of the weekend as investors moved to lower the odds of an imminent rate hike.

Unless BoE policymaker Michael Saunders makes more hawkish comments this afternoon the Pound is likely to remain biased to the downside over the coming days.

Underwhelming Australian Jobs Data Limits Pound Australian Dollar (GBP/AUD) Exchange Rate Downside

Even so, the weakness of the Pound to Australian Dollar (GBP/AUD) exchange rate was still limited due to the disappointing nature of Thursday’s Australian labour market data.

Confidence in the Australian Dollar (AUD) remains muted in the wake of a surprise dip in March’s labour participation rate, which indicates that fewer Australians are now active in the jobs market.

Coupled with a contraction in full time employment this dented optimism in the outlook of the Australian economy, likely giving the Reserve Bank of Australia (RBA) further incentive to remain on hold.

While commodity prices trending sharply higher on fears of fresh US sanctions against Russia, this has not been enough to shore up AUD exchange rates on Friday morning.

GBP/AUD Exchange Rate Forecast to Extend Losses on Rising Australian Inflation

Further pressure could be in store for the Pound to Australian Dollar (GBP/AUD) exchange rate if Tuesday’s Australian consumer price index data proves more positive.

Forecasts point towards a modest uptick in price pressures on the year, boosting inflation from 1.9% to 2.0%.

This would place the figure in line with the RBA’s inflation target, giving investors incentive to pile back into the Australian Dollar once again.

Even if inflation does hit 2%, though, this is still unlikely to materially shift the outlook of RBA policymakers in the near term.

Any shortfall, however, could see AUD exchange rates trending sharply lower across the board next week.

Dip in New UK Government Debt May Boost Pound Australian Dollar Exchange Rate

An improvement in the latest UK public sector net borrowing figure, meanwhile, may offer GBP/AUD a rallying point.

Investors are hoping to see a dip in new government debt for March, limiting the economy’s exposure to any future deterioration in trade conditions or the health of the global economy.

Any increase in borrowing, on the other hand, could leave GBP exchange rates vulnerable to further downside pressure, as markets continue to lack clarity over the likely shape of the post-Brexit economy.

Unless UK data starts to print more positively in the coming weeks the odds of a BoE rate hike are likely to decline, leaving the Pound to Australian Dollar (GBP/AUD) exchange rate on a weaker footing.

Hannah Wilson

Contact Hannah Wilson