GBP/AUD Recoups Losses as Risk Appetite Strengthens
(Updated 16:30, 22/03/2022) The Pound Australian Dollar (GBP/AUD) exchange rate is climbing this afternoon following earlier losses, as improved risk sentiment buoys the Pound (GBP) while Australian Dollar (AUD) gains are capped by a dovish Reserve Bank of Australia (RBA).
Global equity prices have climbed through the session, inspiring risk-on trading in spite of ongoing conflict in Ukraine; market mood has improved to an extent that recent headwinds over a comparatively dovish Bank of England (BoE) are no longer subduing Sterling.
Elsewhere, the ‘Aussie’ has come under pressure from comments that the RBA will not respond to current events with policy action until there is evidence of pervasive price pressures.
Policy divergence between the Reserve Bank of Australia could remain a source of downside for AUD, as even the European Central Bank (ECB) is expected to hike interest rates twice this year.
Original article continues below:
Pound Australian Dollar Exchange Rate Sinks as ‘Aussie’ Continues to Rally
The Pound Australian Dollar (GBP/AUD) exchange rate is falling this morning, despite some optimism in the Pound (GBP) as UK Chancellor Rishi Sunak hints at a solution to manage public finances. Meanwhile, the Australian Dollar (AUD) continues to rally on upbeat commodity prices.
At the time of writing, GBP/AUD is trading at A$1.7789, slightly below today’s opening levels.
Pound (GBP) Buoyed by Chancellor’s Comments
The Pound has enjoyed some support so far this morning, on upbeat comments from UK Chancellor, Rishi Sunak.
The Chancellor will deliver his Spring statement tomorrow: ministers have revealed Sunak’s intention to ‘flex and support people in difficult times’ as he recognises there are ‘a lot of headwinds that everybody is facing’ as the cost of living crisis worsens.
According to reports, Mr Sunak is widely expected to announce a cut to fuel duty to help ease the effect of record-high fuel prices; Tory MPs are also pushing for him to defer a planned National Insurance hike.
Also buoying Sterling sentiment is an optimistic attitude regarding the Ukraine crisis. Comments from Ukraine’s President Volodymyr Zelenskyy indicate that Ukraine will not seek NATO membership, while Russia’s ability to pay a second instalment of Eurobond coupons hints at cooperation.
Capping GBP gains, however, are comments from the UK Lords sub-committee on the Brexit protocol.
The House of Lords committee warned that the UK and EU need to do more to explain how updates to EU law could impact Northern Ireland, adding:
‘Far too much government documentation inadequately explains the implications of EU legislation for NI.’
Australian Dollar (AUD) Strengthens on Commodity Prices
The Australian Dollar is enjoying ongoing tailwinds as export prices surge, bolstering the commodity-linked currency.
The Sydney Morning Herald summarises events during the Australian session, observing that ‘Coal miner New Hope Group put a spotlight on what a boon [Russian sanctions are] for all of Australia’s energy players with its shares up as much as 10 per cent’; UBS chief economist, George Tharenou, added:
‘For Australia, the Russia-Ukraine driven spike in commodity prices is a material positive income shock, lifting the terms of trade to a record high.’
Elsewhere, economists at DBS bank express concerns that AUD may be overbought, foreshadowing ‘near-term exhaustion’. Analysts consider:
‘The long-term outlook on AUD remains bright with the price path since fetching a critical multi-year low at 0.5510 deemed robust. The near-term is altogether different.’
Pound Australian Dollar Exchange Rate Forecast: Mixed RBA Response to Stifle AUD?
Looking ahead, the Pound Australian Dollar exchange rate may waver through today’s session, as investors digest the latest comments from Reserve Bank of Australia Governor Philip Lowe.
Early this morning, Lowe announced that policymakers are keeping an eye on the labour market for signs of rising costs, but the central bank won’t take action unless it finds a significant indication of widespread price pressures. The RBA is also an outlier in not yet having hiked interest rates.
Into tomorrow, UK inflation could buoy Sterling if it rose to 5.9% in February as expected. Increasing price pressures could force the Bank of England (BoE) to quicken its monetary policy tightening, lending support to GBP.