The Pound Australian Dollar (GBP/AUD) exchange rate trended down last week as Russia invaded Ukraine. The Pound (GBP) fell on international tensions, as the Australian Dollar (AUD) retained some upside on commodity prices.
What’s Been Happening: Russia Invades Ukraine, BoE Expectations Slump
GBP/AUD traded in a narrow range at the beginning of last week, as UK PMI growth was stronger than expected; the ‘Aussie’ retained upside on hopes that the Ukraine crisis could be resolved diplomatically.
Such hopes soon waned, however, as Russia invaded the contested Ukrainian regions of Luhansk and Donetsk on an alleged ‘peacekeeping’ mission. UK data missed expectations and international outrage dictated erratic currency movement on Tuesday.
The Pound Australian Dollar exchange rate peaked briefly midweek, although dovish comments from Bank of England (BoE) Governor Andrew Bailey soon quashed GBP upside. Bailey warned that second-round inflation effects could exacerbate the UK’s cost-of-living crisis.
Towards the end of the week, Sterling dipped further as Russia began firing missiles on Ukraine, advancing into the country via Belarus, Crimea and the Black Sea. The Australian Dollar resisted significant downside as commodity prices soared on supply concerns.
Three Things to Watch Out for This Week
- Russia-Ukraine Conflict
Developments in Ukraine are likely to drive currency movement this week as risk sentiment and commodity dynamics affect both GBP and the ‘Aussie’. As the fighting continues, risk aversion may subdue AUD trading.
- RBA Interest Rate Decision
The Reserve Bank of Australia (RBA) is expected to keep interest rates unchanged tomorrow, although ex-policymaker Warwick McKibbin forecasts multiple hikes in 2022. If the central bank strikes a hawkish tone, the Australian Dollar could enjoy tailwinds.
- BoE Rate Hike Outlook
Several BoE policymakers are due to speak this week. Following last week’s dovish comments, if speakers continue in a cautious vein, Sterling could come under further pressure.
Pound Australian Dollar Forecast
The Pound Australian Dollar may also be influence by Australian GDP data and finalised UK PMI readings this week.
The Australian economy is expected to have grown by 3% last quarter, applying potential AUD upside; if the UK’s services PMI climbs as expected, GBP may resist further headwinds.