Pound Australian Dollar (GBP/AUD) Exchange Rate Fluctuates as Australian Inflation Impresses

GBP/AUD Exchange Rate Dented by Robust Australian CPI Figures

The Pound to Australian Dollar (GBP/AUD) exchange rate has faced some pressure this morning as markets reacted to Australia’s latest inflation figures.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.9279, having previously fallen as low as AU$1.9218 earlier in the session.

Australian Dollar (AUD) Welcomes Upbeat Inflation Figures But Coronavirus Fears Cap Gains

The Australian Dollar (AUD) strengthen through the first half of the Asian trading session today as AUD investors welcomed the release of Australia’s latest consumer price index (CPI).

According to data published by the Australian Bureau of Statistics (ABS) domestic inflation accelerated from 0.5% to 0.7% in the fourth quarter, beating expectations of a more modest rise of 0.6%.

This unexpectedly propelled annualised inflation to 1.8%, its highest reading since Q4 2018.

Economists believe the robust inflation figures have further reduced the chances of the Reserve Bank of Australia (RBA) opting for a rate cut in February.

Diana Mousina, an economist at AMP Capital said:

‘The Australian December quarter Consumer Price Index showed headline inflation rising by 0.7% over the with annual inflation up by 1.8%, a little stronger than market expectations of 1.7% year on year growth.

‘[It] is pretty much in line with the RBA’s latest forecasts which takes the pressure off the RBA to cut the cash rate at its next meeting in February.

‘Market expectations for a February rate cut have decreased to only 10% after the inflation data, from around 25% yesterday.’

However, the ‘Aussie’ struggled to consolidate these gains as the start of the European session as lingering concerns over the coronavirus outbreak in China continues to limit market risk appetite.

Pound (GBP) Rangebound as Huawei Row a Potential Threat to UK-US Trade Deal

The Pound (GBP) is mostly subdued in early trade this morning in light of a growing row between Downing Street and the White House over Huawei’s involvement in the UK’s 5G rollout.

The UK government announced on Wednesday that it would be allowing the Chinese tech giant to have a limited role in the UK’s 5G network, in spite of significant US pressure to blacklist Huawei.

Downing Street’s decision faced swift criticism from US Republicans, and GBP investors fear that it could be a point of contention in a post-Brexit UK-US trade deal, something which is likely to be discussed when US Secretary of State Mike Pompeo visits the UK later today.

Further GBP/AUD Exchange Rate Forecast: All Eyes on the BoE, Will it Cut Rates This Month?

Looking ahead, the main catalyst of movement in the Pound to Australian Dollar (GBP/AUD) exchange rate through the latter half of the week will undoubtedly be the Bank of England’s (BoE) rate decision on Thursday.

Markets are currently split almost 50-50 on whether or not the BoE will opt to cut interest rates this month, and as a result there could be some notable movement in Sterling when its decision is announced tomorrow afternoon.

We expect to see a sharp drop in GBP exchange rates if the bank ultimately decides that a rate cut is warranted this month.

Josh Jeffery

Contact Josh Jeffery