Pound Australian Dollar (GBP/AUD) Exchange Rate Wavers on AU Commodity Prices

GBP/AUD Exchange Rate Fluctuates as Australian Commodity Prices Rise

The Pound Australian Dollar (GBP/AUD) exchange rate is subdued through today’s session as the Australian Dollar (AUD) has found support on risk-on trading, as well as a jump in coal prices and renewed Chinese demand for Australian raw materials.

At the time of writing, GBP/AUD is trading at A$1.8501, down slightly from today’s opening levels.

Australian Dollar (AUD) Trends Up as Coal, Gas and Metals Appreciate

The Australian Dollar is trading up against the majority of peers today as commodity prices rise. Coal, oil, gas and metals are all increasing in value, with copper surging towards an all-time high.

According to Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, ‘copper’s surge [took] us by surprise, with the May all-time high at 10747.50 being within reach’; Reuters’ Sam Holmes reports that:

‘Oil prices recouped earlier losses and rose on Tuesday… Gold also gained on lower yields with the spot price rising 0.6% to $1,775.2 an ounce.’

Off the back of yesterday’s poor Chinese GDP data, renewed demand for Australian exports supplies upside pressure along with plateauing Covid cases and risk-on sentiment.

This morning’s release of the latest meeting minutes from the Reserve Bank of Australia (RBA) has also influenced AUD trading, as a dovish policymakers reiterate that the 2-3% inflation target required before the central bank will lift its cash rate will not be until 2024.

RBA officials observed that Delta variant of covid-19 had interrupted the recovery of the Australian economy.

However, a recovery in exports increases the chances that the RBA will put asset-purchase tapering and raised interest rates back on the agenda before too long.

Pound (GBP) Climbs Overall on BoE Optimism

The Pound (GBP) has been underpinned over the past week and a half by rising speculation that the Bank of England (BoE) might begin hiking interest rates imminently.

Hawkish comments from members of the BoE’s Monetary Policy Committee (MPC) expressed concern over the recent spike in UK inflation, hinting that the bank may need to act sooner rather than later.

Over the weekend, BoE Governor Andrew Bailey admitted that his concerns on inflation during the current energy crisis had increased, remarking that ‘we, at the Bank of England, have signaled that we will have to act.’

Some analysts have warned that investors may have gotten carried away in predicting that this could be the first of several rate hikes from the bank.

James Smith, Developed Markets Economist at ING, comments:

‘More likely, the most we’ll see next year is a further 25bp hike, taking the Bank rate to 0.5%, followed by the start of balance sheet reduction.’

Smith’s comments fall in line with those of MPC members Catherine Mann and Silvana Tenreyro, who last week indicated they prefer to see how surging gas prices and raw material shortages affect inflation before voting for a rise in borrowing costs.

With this in mind, GBP investors will be paying close attention to a scheduled speech by Bailey later this afternoon, as they look for more clarity on whether or not we might be entering a new tightening cycle.

GBP/AUD Exchange Rate Forecast: UK Inflation to Inform Trading Direction?

Looking ahead, the UK’s inflation release tomorrow is likely to drive movement in the GBP/AUD Exchange Rate.

If inflation increases, the Pound may rise on renewed expectations of an early rate hike: if inflation declines, GBP/AUD could see losses.

Olivia Evershed

Contact Olivia Evershed