The Pound Australian Dollar (GBP/AUD) exchange rate climbed last week on risk-off trading and a dovish speech from the Reserve Bank of Australia (RBA)’s Philip Lowe; the Pound (GBP) enjoyed upside on bullish bets for Bank of England (BoE) policy tightening.
What’s Been Happening: Central Banks Inspire Movement
The Pound rose against the Australian Dollar (AUD) initially, despite facing headwinds relating to the UK’s cost-of-living crisis and domestic political unrest.
Midweek, Joanna Elson – chief executive of the Money Advice Trust – argued that ‘for those on the lowest income, urgent action is needed’; nevertheless, bets for aggressive policy tightening from the BoE fuelled GBP tailwinds.
UK inflation hit 9.1% in May – a 40-year high, while comments from the bank’s Huw Pill also supported a more hawkish BoE outlook.
Elsewhere, the ‘Aussie’ was subdued by a dovish speech at the start of the week in which Governor Lowe ruled out a 75bps rate hike in July.
Furthermore, the price of iron ore fell – a key Australian export. Recessionary fears kept market sentiment bearish, as Citibank economists cited a 50% chance of recession.
At the end of the week, risk appetite improved and AUD was able to recoup some of its losses. Lowe gave a more upbeat speech, saying that he does not expect a recession in Australia.
Three Things to Watch Out for This Week
- BoE Gov Bailey Speech
Governor Andrew Bailey will give a speech midweek, potentially inspiring GBP upside if he strikes a hawkish tone.
- AU Retail Sales
Australia’s preliminary sales data for May will print on Wednesday: if growth slowed as expected, AUD could face downside.
- UK GDP
May’s finalised UK GDP looks to confirm a slowing in UK economic growth; if GDP falls lower than expected, GBP will likely face headwinds.
Pound Australian Dollar Forecast
Elsewhere, Australia’s Ai Group manufacturing index looks to print marginally below May’s release, which may apply pressure upon the ‘Aussie’.
External factors could also direct GBP/AUD movement, with risk aversion likely to buoy the exchange rate while Brexit tensions could invite downside. Today, Australia’s finance minister made bearish reference to Australia’s economic challenges – applying AUD headwinds.