Pound Australian Dollar (GBP/AUD) Exchange Rate Muted on UK Headwinds
(Updated 16:30, 05/04/2022) The Pound Australian Dollar (GBP/AUD) exchange rate failed to climb through today’s session, remaining around a 4-year low as the Australian Dollar (AUD) retained gains relating to hawkish rhetoric from the Reserve Bank of Australia (RBA).
Meanwhile, Sterling was subdued in spite of upbeat service-sector data, which revealed a greater-than-expected increase in services activity in March. The cost of living crisis weighed upon GBP sentiment as an unprecedented 40% of UK firms raised their average prices in March, while only 3% cut them.
Tensions between Ukraine and Russia also continued to weaken support for perceived-riskier currencies, as Ukrainian President Volodymyr Zelenskyy accused Russia of committing ‘the most terrible war crimes we have seen since the end of World War Two.’
Zelenskyy addressed the UN Security Council this afternoon, appealing for the security that the council promises. The Ukrainian leader reminded the UN that its very first charter is to ‘maintain peace and make sure that peace is adhered to’, asking:
‘Where is the peace? Where are those guarantees that the UN needs to guarantee?’
The President continued:
‘[Russia] will blame everyone just to justify their own actions. They will say that there are various versions, different versions, and it is impossible to establish which one of those versions is true… But it is 2022. Now we have conclusive evidence.’
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GBP/AUD Exchange Rate Nosedives following Hawkish RBA Rhetoric
The Pound Australian Dollar (GBP/AUD) exchange rate has fallen steeply this morning in the wake of the Reserve Bank of Australia (RBA)’s interest rate decision. The central bank struck a more hawkish tone than was expected, buoying investors’ spirits despite the rate itself remaining at 0.1%.
At the time of writing, GBP/AUD is trading at A$1.7198, down 1% from today’s opening levels.
Australian Dollar (AUD) Supported by RBA Forward Guidance
The Australian Dollar (AUD) is climbing sharply against its peers today, benefitting from this morning’s interest rate decision.
The Reserve Bank of Australia left interest rates unchanged at 0.1% but shifted its rhetoric – removing the word ‘patient’ and phrase ‘highly supportive monetary conditions’ from its statement and alluding to pandemic emergency settings in the past tense.
Subsequently, traders started adjusting to earlier-than-previously-expected interest rate rises, as market strategists forecast rates rising as early as June.
Anthony Doyle, head of investment strategy at Firetail Investments, remarked that:
‘By alluding to ‘important additional evidence’ that will become available to the Board on inflation and labour costs, Governor Lowe indicated that the cards are stacking up for a potential rate increase…
We expect the RBA to join other central banks…in hiking interest rates multiple times before the end of the year.’
According to strategists at ING Bank, however, markets’ expectations are overdone.
‘The RBA clearly reiterated that it would wait for more indications that wage growth has significantly picked before moving to tighten policy,’ remarked a representative of the bank, cautioning that current pricing is too bullish.
Economists conclude that market disappointment is set to cap AUD gains; although the ‘Aussie’ may remain supported by rising commodity prices and possible risk-on tailwinds.
Pound (GBP) Weakens; Losses Capped by Upbeat Services PMI
The Pound (GBP) is trading in a mixed range this morning, weighed down by UK living costs and faltering progress in Ukraine.
Recent data shows that UK car sales are the latest casualty of Britain’s financial squeeze: according to James Fairclough, CEO of AA Cars:
‘The cost of living crisis is having an impact on people’s purchasing power, which coupled with the continued interruption in the global supply of parts means new car dealers are facing challenging times.’
Meanwhile, Ukrainian President Volodymyr Zelenskiy said on Tuesday that Ukraine’s efforts to push back Russian troops from Mariupol were facing difficulties.
Although Turkey proposed a plan to help evacuate wounded people and dead bodies from the city, according to Zelenskiy via Reuters, the initiative depends upon the will of President Vladimir Putin, who is sticking to the Russian narrative that civilian deaths in Bucha were staged.
Upbeat UK services data caps Sterling losses, however, printing above expectations at 62.6. The finalised data reflects a continued rebound in output growth from the Omicron-related slowdown seen at the end of last year.
Pound Australian Dollar Exchange Rate Forecast: AU Services Data to Affect Trading?
Looking ahead, Australia’s Ai Group services index could influence trading tomorrow. Service-sector activity is expected to have increased slightly in March, applying potential AUD upside.
Meanwhile, China’s services PMI is expected to report a decrease in activity in March, which could put pressure on the ‘Aussie’ due to the countries’ close trading relationship.