Pound Australian Dollar (GBP/AUD) Exchange Rate Slumps to Four-Month Low
(Updated 16:55, 29/10/2021) The Pound Australian Dollar exchange rate slumped over 0.5% by the end of Friday’s European session to trade at a four-month low of AU$1.8221.
GBP/AUD fell in end of month trade, while the Australian Dollar continues to benefit from expectations the Reserve Bank of Australia (RBA) will raise interest rates sooner than it previously signalled, and rising bond yields.
Better-than-expected Australian retail sales data had provided the ‘Aussie’ with support earlier in the day, after the data release showed 1.3% growth in September, beating forecast of a -0.9% contraction and up on August’s -1.7% reading.
Meanwhile, amid a lack of notable data releases and negative Brexit-related headlines, the Pound tumbled ahead of next week’s Bank of England (BoE) interest rate decision.
Original article continues below:
Pound Australian Dollar Struggles on RBA Rate Hike Bets
The Pound Australian Dollar (GBP/AUD) exchange rate is ticking lower to near four-month lows this morning.
AUD exchange rates are trending higher on rising bond yields as investors bet on sooner-than-expected monetary policy tightening from the Reserve Bank of Australia (RBA).
At the same time, tensions between the UK and France are weighing on Sterling, with GBP/AUD down around 0.2% on the day’s opening levels to trade at AU$1.8281.
Australian Dollar (AUD) Firms on RBA Expectations
The Australian Dollar (AUD) is making gains again this morning to finish the week on strong footing near a four-month high against the Pound.
Markets are betting that the RBA will raise interest rates sooner than expected, with the central bank previously signalling 2024 would likely be the next rate hike.
Investors repriced expectations after the RBA decided not to buy into the three-year bond market in an attempt to keep interest rates on those bonds at 0.1%, which the bank pledged as part of its overall quantitative easing programme.
Last week, the RBA spent $1 billion to keep the rate closer to 0.1%, but the yield has since stayed above 0.5%, hitting a high of 0.8%.
The lack of RBA action and rising yields on the bonds have suggested to investors that the central bank will alter its forward guidance and be forced into an interest rate hike, which has in turn supported AUD exchange rates.
The rise in three-year bond yields comes after third quarter trimmed mean inflation, the RBA’s preferred inflation indicator, rose higher than forecast to 2.1%, from 1.7% in the second quarter.
Soaring inflation fuelled concerns inflation is becoming entrenched and added to speculation that the RBA will have to raise interest rates.
Meanwhile, the Australian Dollar also received some support at the end of the week after Chinese property giant Evergrande made another interest payment before a deadline today to avoid defaulting for the second time within a week.
By making the payment China’s second-largest property developer staved off what could have been the world’s second largest emerging market corporate debt default, potentially triggering an equity market selloff.
Pound (GBP) Pressured by UK-France Tensions
The Pound (GBP) is under pressure at the end of the week as tensions rise in a fishing dispute between the UK and France, and talks begin between Brexit Minister Lord Frost and Vice-President of the European Commission Maroš Šefčovič.
After French authorities seized a British trawler on Thursday, tensions have risen over fishing rights that have been a point of contention between the two countries since the UK left the European Union.
In the latest development, UK environment secretary George Eustice warned the UK could retaliate and that ‘two can play at that game’ and French officials used ‘inflammatory’ language.
Eustice added:
“For now, we’re not going to respond in the way that France has, we’re going to raise this with the commission and we’re going to raise it through diplomatic channels with the French ambassador but we’ll reserve our right to do more things if France continue to press ahead with these threats.”
Against the backdrop of ongoing UK-EU talks on the Northern Ireland protocol, the tensions are weighing on GBP exchange rates.
Pound Australian Dollar Forecast: BoE and RBA Rate Decisions in Focus
The Pound Australian Dollar exchange rate may extend its losses ahead of the Bank of England (BoE) and RBA interest rate decisions next week.
Rising Australian bond yields and expectations for the RBA to tighten monetary policy look set to continue supporting the Australian Dollar.
Meanwhile, expected growth in Australian manufacturing PMI data may also lend some modest support to AUD exchange rates.
Finalised UK manufacturing PMIs for October may cause some movement in GBP exchange rates on Monday, if the final reading changes positively or negatively, before the corresponding final services PMI figures on Wednesday.
In the absence of other UK data until the BoE rate decision on Thursday, rising Covid-19 cases, tensions between the UK and France and talks on the Northern Ireland protocol may stoke volatility in GBP/AUD.