Pound Australian Dollar (GBP/AUD) Exchange Rate Accelerates amid Risk-Off Mood
The Pound Australian Dollar (GBP/AUD) exchange rate is trending higher this morning as a souring market mood sap investor risk appetite.
At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8926, the pairing’s best levels since early August.
Australian Dollar (AUD) Tumbles in Risk-Off Trade
The Australian Dollar (AUD) faces some notable selling pressure this morning as a prevailing risk-off mood and stronger US Dollar (USD) sees investors shun the high-yield currency.
The bearish market mood comes amidst rising concerns that the spread of the Delta variant of the coronavirus threatens to disrupt the global economic recovery.
Alongside the heightened geopolitical tensions surrounding the situation in Afghanistan, investors are understandably reluctant to take risks on currencies like the Australian Dollar.
Further dampening the appeal of the ‘Aussie’ overnight were the publication of the minutes from the Reserve Bank of Australia’s (RBA) latest policy meeting.
These highlighted the ‘uncertainty’ surrounding the near-term outlook due to Australia’s coronavirus resurgence, with the RBA warning that ‘recent outbreaks of the Delta variant of Covid-19 have interrupted the recovery’.
Pound (GBP) Buoyed by Soaring Wage Growth
At the same time, the Pound (GBP) is trending higher against the Australian Dollar this morning following the release of the UK’s latest employment figures.
According to data published by the Office for National Statistics (ONS), domestic unemployment fell back to 4.7% in June, whilst wage growth rocketed up from 7.4% to 8.8%, reinforcing the upside in the GBP/AUD exchange rate.
Whilst the surge in wage growth has been largely attributed to temporary factors, with most economists forecasting it will begin to wane again in the coming months, some analysts suggest that the recent jump in wages could push the Bank of England (BoE) towards hiking interest rates sooner than previously thought.
Kallum Pickering, senior economist at Berenberg, says:
‘We continue to look for the first rate hike in August 2022. But the strengthening inflation dynamic and strong recovery in domestic demand suggest the risks are tilted towards a hike even sooner than that – perhaps as early as May 2022.’
On the other hand, some GBP investors remain concerned that rise in unemployment once the government’s furlough scheme comes to an end in September could delay the next hike.
Pound Australian Dollar Forecast: Slowing UK Inflation to Weaken Sterling?
Looking ahead, the Pound Australian Dollar exchange rate could face some headwinds through the second half of this week, following the publication of the UK’s consumer price index.
July’s CPI release is forecast to report a modest slowing of inflation, which is likely to weigh on Sterling if it saps (BoE) tapering expectations.
On the other hand, should inflation beat expectations the Pound could soar on Wednesday.
Meanwhile, the focus for AUD investors in the second half of the week will no doubt be on the publication of Australia’s own jobs report.
July’s release is expected to report a rise in domestic unemployment as Australia’s wrestled with new coronavirus lockdowns, potentially placing additional pressure on the ‘Aussie’.