Pound Australian Dollar (GBP/AUD) Exchange Rate Soars as ‘Aussie’ Hits Resistance

Pound Australian Dollar Exchange Rate Jumps, Reversing Losses

(Updated 17:00, 29/04/2022) The Pound Australian Dollar (GBP/AUD) exchange rate bounced back this afternoon to levels not seen since Tuesday, as Sterling continued to correct up while the ‘Aussie’ succumbed to downside.

Risk sentiment appears to have improved today, as reflected by strong gains in major European equity indexes. This has apparently boosted GBP, although the Australian Dollar has enjoyed limited success.

Possibly contributing towards risk-on flows are comments from a senior US defense official, who reported that he does not believe there is a threat of Russia using nuclear weapons, despite the recent escalation in rhetoric.

‘We continue to monitor [Russia’s] nuclear capabilities every day,’ said the official, ‘and we do not assess that there is a threat of the use of nuclear weapons.’

Extending further optimism, the British defence ministry confirmed that due to strong Ukrainian resistance, Russian territorial gains have been limited and achieved at significant cost to Russia’s forces.

Original article continues below:

GBP/AUD Exchange Rate Ticks Up on Renewed GBP Strength

The Pound Australian Dollar (GBP/AUD) exchange rate rebounded overnight from a 16-day low, despite a high Australian PPI reading. Increasing producer prices apply pressure on the Reserve Bank of Australia (RBA) to tighten monetary policy, generally supporting the Australian Dollar (AUD).

At the time of writing, GBP/AUD is trading at A$1.7547, up slightly from today’s opening levels.

Pound (GBP) Finds Support despite Ongoing Risk-Off Pressures

The Pound (GBP) has rebounded against the majority of its peers today despite a lack of domestic data and a relatively unchanged state of affairs in Ukraine. Messaging surrounding the conflict remains downbeat, as Russia struck Kyiv with cruise missiles yesterday night.

Two loud explosions rocked the capital on Thursday evening, prompting a furious response from Ukraine’s government as they hosted UN secretary general António Guterres. Foreign minister Dmytro Kuleba denounced the attack as a ‘heinous act of barbarism’, saying:

‘Russia struck Kyiv with cruise missiles right when UN Secretary General António Guterres and Bulgarian PM Kiril Petkov visit our capital… Russia demonstrates once again its attitude towards Ukraine, Europe and the world.’

In response to Russia’s continuing aggression, the UK has revealed it will send 8,000 British army troops to train in eastern Europe in one of the largest deployments since the cold war.

Dozens of tanks will be sent to countries from Finland to North Macedonia this summer under plans that have been enhanced since Russia’s invasion of Ukraine; joining them will be tens of thousands of troops from Nato and the Joint Expeditionary Force alliance.

UK defence secretary, Ben Wallace, explains:

‘The security of Europe has never been more important. These exercises will see our troops join forces with allies and partners across Nato and the Joint Expeditionary Force in a show of solidarity and strength.’

Australian Dollar (AUD) Bolstered by PPI Reading

The Australian Dollar is climbing against several peers this morning, despite sinking against Sterling, as a higher-than-expected producer inflation reading lent upside support to the currency.

Australia’s producer price index jumped to 4.9% on an annualised basis rather than the 4% expected, reflecting rises in prices received for output of building construction, heavy and civil engineering construction and petroleum refining and petroleum fuel manufacturing.

In light of recent inflationary pressures, the Reserve Bank of Australia (RBA) is expected to raise interest rates for the first time in more than a decade on Tuesday, joining a clutch of central banks now expected to tighten policy at a faster pace than previously thought.

Robert Carnell, regional head of research for the Asia-Pacific at ING, remarks:

‘Now that the rate-hike genie looks as if it is out of the bottle, there are good reasons for the RBA to front load the tightening that is inevitably coming.

All the hurdles the RBA has previously placed in front of any rate hikes are arguably already met. The RBA has been gradually making room for itself to tighten in the coming months. But much higher-than-expected inflation in 1Q22 means a May hike is in the frame.’

GBP/AUD Exchange Rate Forecast: Chinese Data to Affect Trading?

Looking ahead, Chinese manufacturing data may influence the Pound Australian Dollar exchange rate given a lack of further data from the UK or Australia this week.

If manufacturing activity fell in April as expected, the ‘Aussie’ could come under pressure due to its role as a proxy for the Chinese economy. The NBS PMI is forecast to print at 48 following month’s 49.5 reading.

In addition, developments in Ukraine may affect risk sentiment, denting either or both currencies; if Russia ramps up missile strikes in Ukraine, market mood will likely suffer.

Olivia Evershed

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