Pound Australian Dollar Exchange Rate Drops Further on BoE Pessimism
(Updated 16:35, 01/03/2022) The Pound Australian Dollar (GBP/AUD) exchange rate continued to trend down this afternoon as markets pared back their bets for central bank policy tightening in 2022.
The Bank of England (BoE) is now seen lifting rates by a further 107 bps versus 128 bps on Monday, as Russia’s invasion of Ukraine and subsequent sanctions imposed by the West triggered fears of economic weakness due to commodity supply disruptions.
Subsequently, UK bond yields have fallen substantially; traders will be listening closely to upcoming speeches from Monetary Policy Committee (MPC) members Michael Saunders and Catherine Mann for any hints.
Russia’s advances in Ukraine are also subduing the Pound on account of weakening risk sentiment, which elevates safe-haven currencies such as the US Dollar (USD), Japanese Yen (JPY) and Swiss Franc (CHF). As long as markets retain their bearish bias, Sterling could find it difficult to climb.
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GBP/AUD Exchange Rate Falls, Tensions in Ukraine Redouble
The Pound Australian Dollar (GBP/AUD) exchange rate has slumped this morning to levels not seen since 12 December, as risk sentiment subdues the Pound (GBP) and Australian Dollar (AUD) investors are hopeful of an interest rate hike from the Reserve Bank of Australia (RBA).
At the time of writing, GBP/AUD is trading at A$1.8442, down 0.3% from today’s opening levels.
Pound (GBP) Trades Mixed as Russian Missile Strikes Intensify
The Pound is trading in a mixed range against its peers today as the conflict in Ukraine continues.
Despite ‘peace talks’ held yesterday between delegations from Russia and Ukraine, news agencies warn that Vladimir Putin could ‘double down on violence’ as he becomes frustrated with the ongoing struggle.
In the meantime, Russian missiles have destroyed residential areas and administration sites in addition to military bases, as Ukrainian Presidential Adviser, Mykhailo Podolyak, claims:
‘Russia’s goal is clear – mass panic, civilian casualties and damaged infrastructure. Ukraine is fighting honourably.’
On the domestic front, the Bank of England (BoE) published consumer credit data this morning, alongside February’s finalised manufacturing PMI.
Consumer credit fell marginally in January rather than increasing as expected, potentially exerting headwinds through today’s session; manufacturing activity in February increased, however – rather than remaining at 57.3 as expected – which may negate consumer credit-related downside.
Australian Dollar (AUD) Climbs as Investors Hope for RBA Rate Hike
The Australian Dollar (AUD) is up against the majority of its peers today, in spite of a prevailing risk-off mood.
Alongside rising commodity prices, the ‘Aussie’ is buoyed by hopes of an interest rate hike from the Reserve Bank of Australia. Although the central bank has signalled that it is prepared to be patient before raising rates, markets remain optimistic.
According to MUFG bank:
‘The Australian rate market is more confident that inflationary conditions will encourage the RBA to begin raising rates by the summer… as [the RBA] now expects a higher CPI spike due to higher petrol prices resulting from global developments.’
The RBA left interest unchanged earlier today, as expected, for the 15th month in a row: policymakers reiterated unpredictability over how persistent the effect on Australian inflation could be, on the back of recent developments.
Governor Philip Lowe struck an upbeat tone, however, in his statement on monetary policy, commenting that the Australian economy remains resilient, as spending is picking up, household and business balance sheets are in generally good shape, business investment is increasing and there is a large pipeline of construction work to be completed.
Pound Australian Dollar Exchange Rate Forecast: Australian GDP to Influence Trading?
Looking ahead, Australia’s GDP growth rate is expected to have increased to 3% in the final quarter of 2021, according to tomorrow’s data. If Australia’s economy expanded as forecast, the ‘Aussie’ could enjoy further tailwinds.
A lack of significant UK data, meanwhile, leaves the Pound to trade on external factors. If Russian missile strikes on Ukraine continue with rapidity, market risk sentiment is likely to decrease, subduing GBP further against its rivals.