Pound Australian Dollar (GBP/AUD) Exchange Rate Rises after Slipping Overnight
(Updated 16:15, 27/4/22) The Pound Australian Dollar (GBP/AUD) exchange rate recovered some of its overnight losses today, although it remains down overall.
The upside in the Pound (GBP) came as investors bought the dip. Additionally, a pullback in some key Australian commodities – including gold and coal – weighed on the resource-linked Australian Dollar (AUD).
At the time of writing GBP/AUD is trading at around AU$1.7608. This is up from today’s low of AU$1.7521, but down from AU$1.7641 at the close of yesterday’s European session.
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Pound Australian Dollar (GBP/AUD) Exchange Rate Down as Aussie CPI Boosts RBA Rate Hike Bets
The Pound Australian Dollar (GBP/AUD) exchange rate extended this week’s downside overnight after Australia’s latest inflation rate exceeded expectations.
GBP/AUD slipped to a six-day low following the CPI. However, it has manged to recoup some losses since the European session opened this morning.
Australian Dollar (AUD) Firms as CPI Fuels Rate Rise Expectations
The Australian Dollar (AUD) strengthened overnight after a hotter-than-expected CPI fuelled expectations of a Reserve Bank of Australia (RBA) rate hike next week.
Headline inflation in Australia jumped from 3.5% to 5.1%, above forecasts of 4.6%. Trimmed mean inflation, which accounts for some volatility and is the RBA’s preferred measure of inflation, also beat predictions, rising from 2.6% to 3.7%, versus the expected 3.4%.
The latest data comes ahead of the RBA’s interest rate decision on Tuesday 3 May. Prior to the CPI release, markets had expected the bank to leave interest rates unchanged. Now traders are shifting their expectations to a 15-bps rate rise.
Cherelle Murphy, the Chief Economist for Oceania at EY, commented:
‘If the Reserve Bank wasn’t convinced that it had the evidence for a rate hike last month, it does for the May meeting next week.
‘A record low cash rate of 0.1% is clearly now no longer appropriate for this economy, meaning the Reserve Bank must join other central banks around the world and tighten monetary policy. To not do so risks the RBA losing credibility.’
Increased rate hike bets have boosted the ‘Aussie’ Dollar, but gains seem limited. Not all economists believe a rate rise next week is certain, and a current risk-off mood and pull back in materials prices are weighing on the risk-sensitive, commodity-linked currency.
Pound (GBP) Crawls Up from Six-Day Low
Meanwhile, the Pound has risen from its six-day low against the Australian Dollar since European trade began.
A modest improvement in the European market mood could be supporting Sterling. After initially dipping, European equity markets are on the rise following better-than-expected first-quarter results from some UK companies.
As with AUD, however, the upside seems limited. The UK faces economic and political headwinds amid the cost-of-living crisis and the ‘partygate’ scandal. Additionally, expectations of a more dovish approach from the Bank of England (BoE) are also weighing on Sterling.
GBP/AUD Exchange Rate Forecast: Will Sterling Falter?
Looking ahead, the Pound may struggle to sustain its upside today. As a result, we could see GBP/AUD slip lower or waver in a narrow range.
BoE Governor Andrew Bailey is due to speak tomorrow morning. Traders have recently reined in BoE rate hike bets as the UK’s cost-of-living crisis threatens to smother the economy. If Governor Bailey strikes a dovish tone, GBP/AUD could fall further.