Pound Australian Dollar (GBP/AUD) Exchange Rate Wavers as UK Inflation Reaches Record High

Pound Australian Dollar (GBP/AUD) Exchange Rate Dips and Rises on High UK Inflation

The Pound Australian Dollar (GBP/AUD) exchange rate fell this morning as Australia’s consumer confidence beat expectations; but subsequently rebounded on high UK inflation.

At the time of writing, GBP/AUD is trading at A$1.8884, virtually unchanged from today’s opening levels.

Pound (GBP) Finds Tailwinds on UK Inflation Data

The Pound (GBP) has gained against the majority of its peers this morning as UK inflation data for the month of August printed 0.3% above forecasts. This is the highest annual inflation has been since March.

The data shows that the majority of upward pressure came from prices of recreation and culture, transport, housing and utilities, food and restaurants and hotels. Meanwhile, CPI also printed above forecasts at 3.1%- the highest figure since November 2011.

The Office for National Statistics reports that a low base effect from last year had the biggest impact, partly because of the government’s Eat Out to Help Out scheme in August 2020 and, to a lesser extent, reductions in Value Added Tax. This assessment is echoed by economists.

Paul Dales, chief economist at Capital Economics, observes that ‘about 0.9ppts of the rise in CPI inflation in August was due to base effects,’ adding that the leap in inflation ‘is the first step in a rise that may take inflation to 4.5% by November.’

Dales stipulates, however, that he expects inflation to fall sharply next year as base factors fade, to below 2% by the end of 2022. Nevertheless, he remarks, ‘the next few months of soaring inflation will be an uncomfortable period for the MPC.’

Australian Dollar (AUD) Relinquishes Early Gains on Consumer Confidence

The Australian Dollar (AUD) rose against the Pound early this morning, as Australia’s Westpac consumer confidence figures printed better than expected. Analysts had predicted a fall from 104.1 in August to 102 for September; instead, confidence rose to 106.2.

According to the data, overall expectations for Australia’s economic conditions in the next 5 years rose by 4.8%. Family finance conditions for the next 12 months advanced by 2.1%, while unemployment expectations dropped 3.3% to 120.5. Such optimistic reports come as Australians hope for a speedy retraction of lockdown curbs.

Bill Evans, Westpac’s chief economist, remarks:

‘The resilience of consumer sentiment in a period when Australia’s two major cities have been locked down and the economy has been contracting is truly remarkable… The improving vaccine situation appears to be a key factor behind these results.’

Since the data was published, GBP gains have trumped Australian Dollar sentiment. The ‘Aussie’ continues to climb against the majority of its peers however, as today’s data undermines yesterday’s dovish speech from the Reserve Bank of Australia (RBA).

Pound Australian Dollar Exchange Rate Forecast: Australian Dollar to Face Headwinds over Unemployment?

Looking ahead, tomorrow’s employment data is likely to drive movement in the Pound Australian Dollar exchange rate.

If Australian unemployment rises as expected, the Australian Dollar could face headwinds; if figures exceed expectations, however, AUD may find support.

Support for the Pound may be bolstered on Friday’s session, as UK retail data prints. Sales are expected to have risen from July’s result by 3%.