Pound Australian Dollar (GBP/AUD) Exchange Rate Soars on Dovish RBA Speech

Pound Australian Dollar (GBP/AUD) Exchange Rate Rockets on Bearish Response to RBA Comments

The Pound Australian Dollar (GBP/AUD) exchange rate has shot up today as Australian Dollar (AUD) sentiment slumps on a dovish speech by the Reserve Bank of Australia (RBA) Governor Philip Lowe. Meanwhile, UK employment figures printed strong, demonstrating a slight fall in unemployment and a rise in average earnings.

At the time of writing, GBP/AUD is trading at A$1.8894, up 0.6% from today’s opening levels.

Australian Dollar (AUD) Plummets as Lowe Comments Inspire Bearish Mood

The Australian Dollar held level through yesterday’s session and into today’s, but was significantly depressed by this morning’s speech from RBA Governor Philip Lowe. Prior to Lowe’s comments, NAB business confidence printed better than expected – potential tailwinds were subsequently undermined.

Governor Lowe said in his speech that the economy would contract significantly in the September quarter. He also mentioned the possibility of further significant restrictions on activity: ‘These could come in response to new outbreaks of Delta, the emergence of a new strain of COVID-19 or a decline in the potency of the current vaccines.’

Referring to monetary policy, Lowe also explained the RBA’s recent decision to extend its tapering programme of A$4bn a week: ‘Given that the recovery has been delayed, we considered it appropriate that we delay any consideration of a further taper in our bond purchases until next year.’

To bullish investors hoping for an optimistic forecast, Lowe’s comments were a blow. Markets had been pricing in a rate hike in late 2022 or early 2023, but Dr Lowe took issue with those bets, saying he found it ‘difficult to understand’ the logic, while lockdowns and unemployment posed headwinds.

Meanwhile, further pressure weighs upon AUD today in the form of an iron ore selloff and ongoing Delta variant concerns. Despite a general risk-on mood, Australian Dollar investors are trading bearishly.

Pound (GBP) Firms on Positive Employment Data

The Pound has risen against the majority of its peers today, as the UK reports a slight drop in July’s unemployment and average earnings rise by 8.3%.

According to the Financial Times, a ‘hiring frenzy’ has begun as the country’s economy reopens. Payrolled employment rose by almost quarter of a million last month as more people rejoined the labour market.

More recent data from HM Revenue & Customs showed that the jobs boom continued in August, with payroll employment up by 241,000 on the month to match pre-pandemic levels. Such reports have boosted GBP trading sentiment as they support the government’s assertion that the jobs market has recovered to a point where it can withdraw wage subsidies.

Kitty Ussher, chief economist at the Institute of Directors, remarks that ‘The economy is now well-prepared for the end of furlough’; her comments are supported by those of Ruth Gregory, economist at Capital Economics, who observes that labour market slack is declining fast.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: Pound to Climb Higher on UK Inflation?

Looking to tomorrow, the Australian Dollar may stand to recoup some losses if Australia’s Westpac consumer confidence data prints high. The main event of the day, however, will be the UK’s publication of its August inflation rate.

Analysts predict UK inflation will rise to 2.9% tomorrow, as opposed to 2% the month previous. If the data prints as expected, the Pound Australian Dollar is likely to climb higher, potentially increasing the chance of imminent policy tightening from the Bank of England (BoE).

The ‘Aussie’ will have another chance to redeem itself on Thursday, if Australian employment data prints high; although predictions of rising unemployment bode poorly for AUD.