Pound Australian Dollar (GBP/AUD) Exchange Rate Plunges on RBA Optimism
The Pound Australian Dollar (GBP/AUD) exchange rate is trading on the defensive today after a surprisingly hawkish turn by the Reserve Bank of Australia (RBA) following its latest policy meeting.
At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8637, down roughly 0.9% from this morning’s opening levels.
Australian Dollar (AUD) Soars on RBA Tapering Speculation
The Australian Dollar (AUD) has enjoyed strong support today, with the currency rallying on the back of the RBA latest policy statement.
While the RBA opted to leave interest rates on hold as expected this month, the bank’s apparent optimism over the strengthening of the labour market, buoyed AUD exchange rates as it triggered speculation the RBA could finish winding down its stimulus programme a little earlier than previously thought, potentially paving the way for a rate hike in 2023.
Francesco Pesole, FX Strategist at ING comments:
‘The rate announcement saw no changes to the main policy tools. However, policymakers characterised the Omicron variant as a ‘source of uncertainty’ that ‘is not expected to derail the recovery’ and stressed instead a strong recovery in the jobs market.
‘This is ultimately allowing markets to speculate that the RBA may follow the example of the Bank of Canada and abruptly end asset purchases (rather than simply tapering again) at the February meeting. With still a lot of short positions to be unwound, this is a notion that can continue to offer support to the Australian dollar in the coming weeks.’
Also bolstering the appeal of the risk-sensitive Australian Dollar is continued improvement in market sentiment, as preliminary analysts appears to suggest the Omicron Covid variant –while highly infectious – generally results in mild symptoms.
Pound (GBP) Subdued as Domestic Omicron Cases Rise
At the same time, the Pound (GBP) finds itself on the defensive today, amidst concerns about the spread of the Omicron Covid variant in the UK.
UK Health Secretary Sajid Javid announced at the start of the week that there is now ‘community transmission of the Omicron coronavirus variant in multiple regions of England.’
While early indicators for the Omicron strain indicate it results in milder symptoms, until there is more clarity it appears GBP investors are remaining cautious.
Pound Australian Dollar Forecast: Omicron Developments to Remain in the Spotlight
With UK and Australian data thin on the ground through the middle of this week, the direction of the Pound Australian Dollar exchange rate, is likely to be primarily driven by market sentiment.
As such, it’s likely that Omicron developments will act as a key catalyst, with the GBP/AUD exchange rate likely to maintain its downward trend so long as headlines remain encouraging, underpinning the risk-on mood. On the other hand, should new concerns arise then the ‘Aussie’ could weaken.
Elsewhere we might see Sterling be primarily driven by Brexit news, with the Pound potentially facing some resistance if talks between the UK and EU remain deadlocked.