The Pound Australian Dollar (GBP/AUD) exchange rate trended up in the first half of last week, as the Australian Dollar (AUD) was subdued by multiple headwinds. In the second half of the week, risk sentiment buoyed the ‘Aussie’ as the Pound (GBP) came under pressure.
What’s Been Happening: Employment Data Drives Movement
GBP/AUD firmed at the beginning of the week as risk-on tailwinds buoyed the Pound while AUD was subdued by a Covid outbreak in China.
Also denting Australian Dollar sentiment was dovish rhetoric from the Reserve Bank of Australia (RBA). The central bank’s meeting minutes stipulated it was too early to conclude whether inflation was sustainably within the target band.
Meanwhile, Sterling was buoyed by upbeat employment data: the UK’s unemployment rate fell to 3.9% in January.
In the second half of the week, the Pound Australian Dollar exchange rate changed direction as a lack of GBP data exposed the Pound to losses.
AUD gained strength on strong risk appetite and employment data as domestic unemployment fell from 4.2% to 4% in February.
At the end of the week, the ‘Aussie’ managed to climb on increasing commodity prices while Sterling came under pressure following a dovish commentary from the Bank of England (BoE). The central bank hiked interest rates by 25bps, but investors were disappointed by the BoE’s cautious forward guidance.
Three Things to Watch Out for This Week
- UK Inflation
UK inflation is expected to have increased in February, potentially uplifting Sterling as the BoE faces further pressure to tighten monetary policy.
- March PMIs
Both the UK and Australia print PMI data this week. Industrial activity is expected to have fallen across the board, exerting potential headwinds.
- Ukraine conflict
Exchange rates will likely be affected by risk sentiment over the conflict between Ukraine and Russia. If peace talks prove successful, GBP/AUD may dip on risk-on trading.
Pound Australian Dollar Forecast
The Pound Australian Dollar exchange rate may also be affected by central bank dynamics, as RBA Governor Lowe is due to speak tomorrow.
If Lowe strikes a hawkish tone, GBP/AUD may trend down on ‘Aussie’ tailwinds.