The Pound Australian Dollar (GBP/AUD) exchange rate climbed overall last week as a risk-averse market mood boosted the Pound (GBP) against risk-off peers. AU inflation lent some support to the ‘Aussie’, but tailwinds were capped by bearish sentiment.
What’s Been Happening: AU Inflation Impresses, Hawkish Fed Subdues Markets
The Pound rose against the Australian Dollar (AUD) at the beginning of last week as Australia’s flash PMI estimates missed forecasts.
On Tuesday, stronger-than-expected AU inflation fuelled speculation that the Reserve Bank of Australia (RBA) may scrap its bond-buying programme. Sterling traded mixed as UK Prime Minister Boris Johnson fell in popularity.
Midweek, risk appetite recovered briefly, allowing the ‘Aussie’ to climb. The Pound continued to trade flat as tensions mounted between the UK and EU over the Northern Ireland Protocol.
On Thursday, AUD fell on risk-off trading, as Federal Reserve Chairman Jerome Powell rattled markets by announcing the Fed will raise interest rates aggressively from March. The Pound recouped losses against several peers.
At the end of the week, market sentiment remained bearish, allowing GBP/AUD to climb to a 20-month high; Sterling gains were extended by easing Covid restrictions in the UK.
Three Things to Watch Out for This Week
- PMI Data
Both Australia and the UK will release finalised PMI data this week. Business activity is expected to have fallen across the board, potentially subduing both currencies.
- RBA Interest Rate Decision
The Reserve Bank of Australia is expected to leave interest unchanged tomorrow, although it may announce an end to its bond-buying programme. Such a move may buoy the ‘Aussie’.
- Bank of England (BoE) Interest Rate Decision
The BoE will announce its interest rate decision on Thursday: policymakers are expected to vote to raise interest to 0.5%, likely lending GBP tailwinds.
Pound Australian Dollar Forecast
The Pound Australian Dollar exchange rate is likely to be affected this week by political activity in addition to economic data.
The Sue Gray report into Boris Johnson’s lockdown activities is expected to be released this week – any evidence of rule breaking will likely exert Pound headwinds on uncertainty over the Prime Minister’s ongoing leadership.