GBP/AUD Exchange Rate Holds Steady in Bullish Trade
(Updated 14:40 1/2/2022) The Pound Australian Dollar (GBP/AUD) exchange rate remains in the narrow range this afternoon, with the pairing trading just above AU$1.90 amidst a prevailing risk-on mood.
A pullback in the US Dollar (USD) and an improvement in market sentiment is helping to prop-up demand for the risk-sensitive ‘Aussie’ at the start of the US trading session.
Meanwhile, the uptrend in AUD exchange rates is being offset by a modest uptick in the Pound. GBP investors appear to be shrugging off concerns over Boris Johnson’s political woes, after the UK’s latest manufacturing PMI printed above expectations.
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Pound Australian Dollar Exchange Rate Rangebound Following RBA Rate Decision
The Pound Australian Dollar (GBP/AUD) exchange rate is trading in a narrow range this morning after the Reserve Bank of Australia (RBA) sought to tame expectations for a 2022 rate hike.
At the time of writing the GBP/AUD exchange rate is trading at around AU$1.9055, virtually unchanged from today’s opening rate.
Australian Dollar (AUD) Undermined as RBA Tempers Rate Hike Speculation
The Australian Dollar (AUD) is trading without any strong directional bias this morning, following the RBA’s latest interest rate decision.
As expected the RBA left interest rates on hold at a record low of 0.1% this month, but the bank did announce it would finish winding down its quantitative easing programme this month as some analysts had forecast.
The early end to the RBA’s stimulus programme might have bolstered speculation the bank could begin hiking interest rates later this year, had RBA Governor Philip Lowe not sought to pour cold water on such bets.
Lowe said:
‘Ceasing purchases under the bond purchase program does not imply a near-term increase in interest rates.
‘As the Board has stated previously, it will not increase the cash rate until actual inflation is sustainably within the 2 to 3% target range. While inflation has picked up, it is too early to conclude that it is sustainably within the target band.’
Lowe’s comments prompted a knee-jerk slump in the Australian Dollar earlier in the Asian trading session, but the ‘Aussie’ has since managed to pare the majority of its losses.
Pound (GBP) Muted as Initial Release of Sue Gray Report Rocks Westminster
Meanwhile, the Pound (GBP) is also subdued this morning as Sterling continues to waver following the preliminary release of the Sue Gray report into lockdown breaches at Downing Street.
While this did not constitute the full release of the report, with some parts being redacted due to an ongoing police investigation, the ‘update’ highlighted a ‘failure of leadership’ in Downing Street.
The report will provide additional ammunition for those calling for Boris Johnson’s resignation, with the threat of a potential leadership challenge acting as a key risk event for the Pound.
Pound Australian Dollar Forecast: Hawkish BoE Forward Guidance to Bolster Sterling?
Looking ahead to the remainder of the week, it seems safe to assume the Bank of England’s (BoE) own interest rate decision will act as the primary catalyst of movement in the Pound Australian Dollar (GBP/AUD) exchange rate.
The BoE is widely expected to raise interest rates from 0.25% to 0.5% when it concludes its latest policy meeting on Thursday.
But with the rate hike largely priced in by GBP investors, it’s likely to be the bank’s forward guidance which will determine the direction of the GBP/AUD exchange rate, with Sterling likely to strengthen if the BoE signals it will maintain the current aggressive pace of tightening through 2022.
Meanwhile, AUD investors will be focused on Australia’s upcoming trade figures. Will an expansion of the nation’s trade surplus at the end of 2021 help to propel the Australian Dollar higher?