Pound Australian Dollar Trades Sideways on Risk-Off Sentiment
(Updated 16:45, 07/06/2022) The Pound Australian Dollar (GBP/AUD) exchange rate levelled this afternoon as cooling risk appetite dampened support for both currencies.
The upswing in ‘Aussie’ sentiment following the Reserve Bank of Australia (RBA)’s interest rate decision proved to be short-lived, as a bearish trading atmosphere overcame initial bullish impulses amongst AUD investors. Risk aversion was triggered by expectations that more aggressive moves by central banks to constrain inflation could stifle global economic growth.
Inflation continues to be a major issue as global supply chain disruption caused by the Russia-Ukraine war pushes consumer prices higher. In an appearance on CNN’s State of the Union on Sunday, US commerce secretary Gina Raimondo remarked:
‘I don’t think anyone predicted (Russian president Vladimir) Putin’s war in Ukraine… It’s worth noting that gas prices are up $1.40 a gallon since Putin moved troops into Ukraine.’
Meanwhile, the Pound recovered losses against several of its peers this afternoon as the present attitude to last night’s confidence vote appears to be one of resignation, having flitted briefly between relief and skepticism.
Markets seem to have accepted that Johnson doesn’t at present have a credible contender within the conservative party and even if he did, any potential replacement would likely continue with similar policies. Subsequently, the press and public may be ready to put the issue of the UK’s leadership aside for now.
Original article continues below:
GBP/AUD Exchange Rate Drops on Higher-Than-Expected Rate Hike
The Pound Australian Dollar (GBP/AUD) exchange rate fell sharply this morning as the Reserve Bank of Australia (RBA) hiked interest rates by 0.5% rather than the 0.25% expected. The Pound (GBP) quickly recovered its losses, however, following the Prime Minister’s survival of last night’s confidence vote.
At the time of writing, GBP/AUD is trading at A$1.7385, down 0.2% from today’s opening levels.
Australian Dollar (AUD) Firms on Hawkish RBA
The Australian Dollar (AUD) is trading higher against the majority of its peers this morning following an unexpectedly bold move from the RBA.
Australia’s central bank hiked interest this morning by 50 basis points, bringing the rate to 0.85%; this was the first back-to-back rate hike in 12 years with policymakers signalling that further tightening is in the pipeline.
Explaining the reason for the hike, the board said huge monetary support is no longer needed given the strength of the economy and current inflation pressures. In addition, the labour market is strong as employment has grown, with Australia’s jobless rate the lowest it’s been in almost 50 years.
In his statement following the publication of the RBA’s decision, Governor Philip Lowe said:
‘Today’s increase in interest rates by the Board is a further step in the withdrawal of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic.
The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market. The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.’
Pound (GBP) Wavers on PM Optimism, Weaker Risk Tone
The Pound is trading in a mixed range this morning, having initially recovered earlier losses against the ‘Aussie’ but subsequently dipping on fading support.
Capping downside is Prime Minister Boris Johnson’s success in overturning last night’s confidence vote, with 59% of his MPs backing him to stay on. Johnson said the vote was ‘decisive’ and is due to meet his cabinet later in a bid to ‘refresh’ and move on from the ‘Partygate’ saga.
Nevertheless, there remain whisperings of discontent amongst the PM’s critics, who compare this leadership challenge to Theresa May’s 2018 confidence vote. Six months after the vote, May resigned – although only 37% of her MPs voted against her.
Also denting Sterling sentiment is a weaker risk tone amidst global inflationary pressures and geopolitical concerns. A disappointing report this morning from the British Retail Consortium (BRC) applies additional pressure.
The report revealed that retail sales in the UK fell 1.5% on a like-for-like basis in May 2022 from a year earlier, contracting for the third straight month and by more than the 1% forecast.
Pound Australian Dollar Exchange Rate Forecast: UK Services PMI to Inspire Movement?
Finalised data recently revealed that service sector activity in the UK increased by more than expected in May 2022, as the S&P Global/CIPS UK Services PMI printed at 53.4 rather than the 51.8 forecast.
Looking ahead, this news may buoy GBP against the Australian Dollar and its other peers.
Elsewhere, external factors may influence GBP/AUD, with ongoing threats from Russia towards the West possibly denting overall risk sentiment.