Pound Australian Dollar Exchange Rate Slumps as US Inflation Shock Blows Over
(Updated 16:50, 10/02/2022) The Pound Australian Dollar (GBP/AUD) exchange rate climbed briefly around lunchtime today as US consumer price inflation reached 7.5% in January, inspiring a brief risk-off attitude.
While the Australian Dollar tumbled on risk aversion, GBP managed to retain upside support on hopes that increasing inflationary pressures in the US would encourage tightener monetary policy across the board.
The ‘Aussie’ soon recovered, however, as risk sentiment improved. AUD investors now await a speech from Reserve Bank of Australia (RBA) Governor Philip Lowe this evening, in which it is hoped the head of the central bank will strike a hawkish tone. RBA messaging has been fairly dovish recently, but traders speculate that rising inflationary pressures may lead to more aggressive monetary policy tightening.
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GBP/AUD Exchange Rate Trades Flat on Weak Pound Sentiment
The Pound Australian Dollar (GBP/AUD) exchange rate is trading sideways this morning as UK headwinds limit Pound (GBP) upside. Rising living costs in the UK are already damaging consumer confidence, with further increases likely to affect behaviour and morale.
At the time of writing, GBP/AUD is trading at A$1.8862, virtually unchanged from today’s opening levels.
Pound (GBP) Gains Limited by Forecasts of Price Hikes
The Pound continues to come under pressure today as warnings of further inflationary pressures exacerbate weak Sterling sentiment. Planned price hikes on household grocery staples such as shower gel and breakfast foods add to existing headwinds over weak consumer confidence.
The consumer goods giant, Unilever, has warned that it expects ‘very high’ cost pressures in the first half of this year on account of higher raw material prices, shipping charges and packaging costs. The news follows a drop in share prices after the company failed to acquire the consumer healthcare arm of GlaxoSmithKline (GSK).
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, warns that:
‘Inflation is flashing as a big warning light in these results and the worst may be yet to come… With belts being tightened as the cost of living squeeze intensifies some customers won’t put up with increased prices indefinitely and may switch to cheaper alternatives.’
Such an announcement is unlikely to buoy consumer sentiment: a survey published yesterday revealed that the cost of living is already weighing on public morale, with respondents’ confidence about their financial outlook falling in January to its lowest in more than eight years.
Sam Miley, senior economist at Cebr, observed that the survey’s reading for household finances was ‘particularly stark’, citing plans to raise taxes for working people as another reason why the public are feeling strain on their budget.
Australian Dollar (AUD) Buoyed by Risk-On Mood
The Australian Dollar trended up against several of its peers earlier this morning, boosted by a risk-on market mood and a positive tone in the equity markets. Furthermore, bullish bets for central bank rate hikes – specifically from the Reserve Bank of Australia (RBA) – saw the Australian government ten-year bond yield hit its highest level since March 2019 last night.
Earlier in the week, John Edwards, a former Reserve Bank of Australia (RBA) member, said that the RBA could raise rates four times in quick succession late in 2022; last week, RBA Governor Philip Lowe ‘conceded’ that tightening of monetary policy was a ‘plausible scenario’.
Subsequently, economists at two of the nation’s major lenders speculate that the Reserve Bank of Australia could announce an interest-rate increase at any of its meetings from June onwards.
Felicity Emmett at Australia & New Zealand Banking Group Ltd remarked that ‘given the risk to wages that could come as early as June, every meeting from June is live’; Commonwealth Bank of Australia’s Gareth Aird echoed that view, adding that a federal election – due by May – would be out of the way by then.
Pound Australian Dollar Exchange Rate Forecast: UK GDP to Drive Movement?
Looking ahead, UK GDP data is likely to influence the Pound Australian Dollar exchange rate tomorrow. The British economy is expected to have grown in December by 6.3%, potentially lending Sterling tailwinds and boosting GBP/AUD.
Meanwhile, a lack of significant Australian data leaves the ‘Aussie’ to trade on external factors. If a risk-on mood persists, AUD losses may be capped: upbeat Chinese data could also lend support to the Australian Dollar.