(Updated 16:50 25/02/22)
The Pound Australian Dollar (GBP/AUD) exchange rate stayed under pressure today, but has not made any further significant losses. Risk-on trading has increased amid reports that Russian forces have made their way closer to Kyiv.
The mayor of Kyiv, Vitali Klitschko, has said that the city in now in its defensive phase:
‘The city has gone into a defensive phase. Shots and explosions are ringing out in some neighbourhoods. Saboteurs have already entered Kyiv. The enemy wants to put the capital on its knees and destroy us.’
At time of writing the GBP/AUD exchange rate is at around $1.8578, down around -0.5% from this morning’s opening figures.
Pound Australian Dollar (GBP/AUD) Exchange Rate Slides amid Return of Risk Appetite
The Pound Australian Dollar (GBP/AUD) exchange rate tumbled today amid a return of risk appetite. The risk appetite is likely to remain volatile however as the Russian invasion of Ukraine continues. A further rally in commodity prices bolstered the Australian Dollar (AUD).
At time of writing the GBP/AUD exchange rate is at around $1.8581, down roughly -0.5% from this morning’s opening figures.
Australian Dollar (AUD) Buoyed by Uptick in Iron Ore Prices
The Australian Dollar (AUD) climbed against its rivals amid a risk-on market mood despite the ongoing Russian invasion of Ukraine. A further uptick in iron ore prices helped underpin any losses for the ‘Aussie’.
AUD has benefitted from resurgent risk appetite although the market mood remains volatile. Reports have indicated that Russian troops have made moves further into Ukraine including attacks on the capital city of Kyiv.
Western nations have continued to ramp up efforts to economically sanction Russia criticism that first-efforts were not harsh enough. The UK, US, and EU have all sanctioned multiple Russian financial institutions and prominent individuals.
The Australian Dollar could see domestic headwinds however after property and construction giant Probuild entered administration on Thursday. The move threatened thousands of jobs and left construction projects across the nation unfinished.
Pound (GBP) Edges Higher amid Nosedive to Consumer Confidence
The Pound (GBP) edged higher against many of its safer competitors today amid a risk-off market mood. Further escalation in the Russia-Ukraine conflict has seen some demand return to safe-haven currencies however. This may in turn pull Sterling down.
Fading expectations of an interest rate hike from the Bank of England (BoE) may harm the Pound’s chances. Markets have largely priced in the hike although analysts have warned that Russia’s invasion of Ukraine could disrupt the BoE’s plans. Exports of wheat in particular have been harmed by the invasion.
Investors’ expectations were also likely stunted by comments from multiple BoE policymakers earlier in the week. Governor Andrew Bailey stated that markets should not get ‘carried away’. Silvia Tenreyro meanwhile, a member of the central bank’s Monetary Policy Committee (MPC), said that only ‘modest tightening’ would be needed.
Following the comments, the International Monetary Fund warned the BoE that clear communication would be necessary in order to avoid a reaction from the markets similar to previous rate hikes.
GBP/AUD Exchange Rate Forecast: Will RBA Shock Investors and Raise Rates?
Looking to the week ahead for the UK, February’s manufacturing and services PMIs are due on Tuesday and Thursday respectively. Whilst the UK’s manufacturing sector is expected to maintain its current pace, services are forecast to recover further following the Omicron wave.
For the Australian Dollar, investors will be most keenly focused on Tuesday’s interest rate decision from the Reserve Bank of Australia (RBA). Investors see a rate hike from the RBA as unlikely which could harm confidence in AUD.
Wednesday’s GDP growth figures for the fourth quarter of 2021 could boost the ‘Aussie’ however should they rise as forecast. Following the reopening of the country’s borders this month, the Australian tourism sector has reported a strong recovery.