GBP/AUD Exchange Rate Retreats as Australia CPI Impresses
The Pound to Australian Dollar (GBP/AUD) exchange rate is on the defensive this morning, following the release of Australia’s latest consumer price index (CPI).
At the time of writing the GBP/AUD exchange rate is trading at around AU$1.9064, down roughly 0.3% from this morning’s opening rate.
Australian Dollar (AUD) Buoyed as Inflation Jumps to Five-Year High
The Australian Dollar (AUD) continues to press higher this morning as AUD investors respond to Australia’s quarterly CPI release.
According to data published by the Australian Bureau of Statistics (ABS), domestic inflation rose by 0.3% in the first quarter of 2020, with year-on-year inflation accelerating from 1.8% to 2.2%, its highest levels since 2014.
CPI rose 0.3% in the March 2020 quarter https://t.co/l3rBFfJCGZ
— Australian Bureau of Statistics (@ABSStats) April 29, 2020
The surge was led by sharp rises in food and drink prices, which surged 1.9% due to the impact of the drought and bushfires.
However, analysts predict this jump in inflation is likely to prove temporary, and with oil prices in free-fall and demand plummeting across the board due to the coronavirus crisis, some are even warning the next quarter could see inflation turn negative for the first time since the 1960s.
Dr Sarah Hunter, Chief Economist at BIS Oxford, comments:
‘Looking ahead, although prices may remain elevated for some groceries due to additional demand, the current crisis is very likely to push the economy into deflation in the June quarter.’
Economists believe that while such a development will be of concern to the Reserve Bank of Australia (RBA), with the bank having already slash interest rates to a record low of 0.25% any additional action is unlikely.
Hayden Dimes, an economist at ANZ, suggests:
‘In effect, the RBA’s actions are already consistent with the prospect of very weak annual inflation later this year, as the likely large drop in aggregate demand and a sharp rise in unemployment put downward pressure on inflation.’
Pound (GBP) Subdued Amidst Brexit Concerns
At the same time, the Pound (GBP) is struggling to find support this morning amidst renewed Brexit jitters.
Reuters reports that the EU views Brexit trade talks with the UK to be at an impasse, with the two sides unable to agree on a number of major issues.
An EU source said:
‘There are plenty of minor technical details where we could find solutions. But on the fundamental goals each side is trying to achieve – the differences are enormous. Things cannot move without a political push. And it’s missing.’
On the UK front a Downing Street spokesperson suggests there will need to be some movement on the EU’s side if a deal is to be reached.
With time quickly running and the UK government reluctant to delay Brexit any further GBP investors are increasingly fearful of a no-deal Brexit at the end of 2020.
GBP/AUD Exchange Rate Forecast: UK to Extend Lockdown?
Looking ahead, the Pound to Australian Dollar (GBP/AUD) exchange rate looks set to fall further as the UK government looks to extend the lockdown.
Boris Johnson is set to speak with the devolved administrations in Scotland, Wales and Northern Ireland to review the lockdown, but with the government’s fear of a second wave of infections an extension is looking increasingly likely.
Meanwhile, the ‘Aussie’ is likely to maintain its upward trajectory so long as other countries continue to explore ways of easing restrictions and reopening their economies.