GBP/AUD Exchange Rate Rises, Cooling Inflation Provides Relief for BoE
(Updated: 18/08/2021 16:10) The Pound Australian Dollar exchange rate continued to rise later this afternoon, with cooling inflation data for July providing relief for the Bank of England (BoE) as inflationary pressures ease off. The pairing is currently trading around AU$1.90.
Philip Inman, the economics writer for The Guardian, commented:
‘Headlines warning of hyperinflation and the threat of higher borrowing costs look a little silly after the inflation rate fell by more than expected in July, easing back down to the Bank of England target of 2%.
‘Much of the speculation after a rise in June to 2.5% asked whether the UK was heading for a long period of spiralling prices that would force a fundamental review by officials in Threadneedle Street.’
Meanwhile, growing concerns over Australia’s intensive lockdowns due to its zero-Covid-19 approach has dampened confidence in the domestic economy’s recovery, weakening demand for the ‘Aussie’.
Original article continues below:
GBP/AUD Exchange Rate Rangebound, UK CPI Declines in July
The Pound Australian Dollar exchange rate held steady this morning after July UK inflation gauge slowed more-than-expected to 2% from June’s 2.5%. The pairing is currently fluctuating around AU$1.89.
Sterling failed to gain against the ‘Aussie’, however, despite some analysts predicting inflation to rise towards 4% in the coming months.
Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, commended on the data:
‘July’s decline in CPI inflation is attributable to the sharp increase in prices a year ago, when the economy emerged from lockdown and the ONS stopped imputing prices for goods and services that were previously unavailable.
‘Looking ahead, the headline rate remains on course to rise sharply, though we think the Bank of England’s forecast for a 4.0% average rate in Q4 and Q1 is a bit too high.’
Weighing on the GBP/AUD exchange rate today is the spike in daily cases of the coronavirus throughout the UK.
Daily cases are up by 3,342 compared to last week, while hospitalisations have also risen, with the figure currently at 6,303, up by 323 versus the previous week.
As a result, Pound investors have become more cautious about the outlook for the economy, with cases expected to rise in autumn.
Australian Dollar (AUD) Exchange Rate Steady as Risk Sentiment Improves
The Australian Dollar (AUD) clawed back some of its losses today as risk sentiment improves, driving-up demand for the risk-averse ‘Aussie’.
However, many AUD investors are remaining cautious, with fears that Australia’s tightened lockdown measures threatening to derail the nation’s economic recovery.
Melbourne state’s chief health officer, Prof Brett Sutton,
‘We are at the brink and we need to step back from the brink. We are maybe just keeping up with this outbreak, but we are not ahead of it in the way that we need to be in order to achieve control.’
This morning also saw the publication of the latest Australian wage data, with the wage price index for the second quarter rising by 1.7% year-on-year and 0.4% quarter-on-quarter.
Analysts at Reuters commented on the data:
‘The sluggish figures are a blow for the Reserve Bank of Australia (RBA), which wants to see annual wage growth up at 3% or higher in order to drive inflation back into its 2-3% target band.
‘That was already a tough task given cyclical forces such as globalisation, rapid immigration, the decline of unions, government clampdowns on public sector pay and cost containment by Australian firms.’
Australian wage data was, however, downbeat, indicating a slowing down in the nation’s economy.
Could this eventually drag down the AUD/GBP exchange rate as markets digest the dimming outlook for Australia’s recovery?
GBP/AUD Exchange Rate Outlook: Australian Jobs Data in Focus
Australian Dollar (AUD) investors will be looking ahead to Thursday’s release of the latest Australian jobs data.
Could rising levels of unemployment in Australia weigh on the ‘Aussie’?
Risk sentiment will be a key influence on the Australian Dollar Pound exchange rate this week. If global market mood improves, however, then the ‘Aussie’ would benefit.
In absence of any notable UK economic data, Pound traders will monitor the UK’s Covid-19 situation.
Any indications of rising Covid-19 infections and hospitalisations would be GBP-negative.