Pound Australian Dollar (GBP/AUD) Exchange Rate Rebounds as Sentiment Sours
(Update 16:00, 20/7/22) The Pound Australian Dollar (GBP/AUD) exchange rate fell to a six-week low earlier today before a turnaround in risk appetite helped the currency pair recover.
Markets began the day hopeful that Russia would resume gas supplies through the Nord Stream 1 pipeline tomorrow. However, Vladimir Putin cast doubt on the planned restart of gas supplies. The Russian President said it was not clear what condition a key turbine – which had been sent to Canada for repairs – would be in, and that the pipeline may not be operational immediately.
In addition, the European Commission President Ursula von der Leyen warned that a full cut off of Russian gas was ‘likely’. Von der Leyen told reporters in Brussels:
‘We have to prepare for a full disruption of Russian gas. This is a likely scenario.’
Renewed worries about the Eurozone’s energy crisis caused market sentiment to sour, which seems to have hurt the more risk-sensitive Australian Dollar (AUD). This allowed the Pound (GBP) to regain earlier losses, with GBP/AUD bouncing off a six-week low. Overall, the Pound ‘Aussie’ pair has moved sideways.
Original article continues below:
Pound Australian Dollar (GBP/AUD) Exchange Rate Falls amid Risk-On Mood
The Pound Australian Dollar (GBP/AUD) exchange rate lost ground today despite UK inflation printing above forecasts. The upside in the Australian Dollar (AUD) came courtesy of a risk-on market mood and hawkish comments from the Reserve Bank of Australia (RBA).
Currently, GBP/AUD is trading at around AU$1.738, down from an overnight high of AU$1.7423.
Australian Dollar (AUD) Wavers Higher amid Risk-On Mood
The Australian Dollar fluctuated in overnight trade as AUD investors grappled with mixed trading signals.
One event that put downward pressure on the ‘Aussie’ was the monetary policy decision from the People’s Bank of China (PBoC). The bank left its loan prime rates unchanged, disappointing AUD bulls as the Australian Dollar is often traded as a proxy for the Chinese economy.
However, some supporting factors buoyed AUD, helping it gain against the Pound (GBP) overall. An upbeat market mood lifted the risk-sensitive ‘Aussie’, while hawkish comments from RBA Governor Philip Lowe also gave AUD a boost.
Following the hawkish RBA minutes released in the early hours of Tuesday morning, Lowe reiterated that the bank expects to continue hiking interest rates in the coming months.
The upbeat market mood has tentatively spread into European markets this morning, keeping AUD afloat.
Pound (GBP) Declines following Inflation Data
Meanwhile, the Pound is softening against many of its peers this morning following the UK’s latest inflation data.
Headline inflation exceeded forecasts of 9.3% to hit a fresh 40-year high of 9.4%. However, this failed to impress GBP bulls. This was perhaps due to the second consecutive decline in core inflation, which fell from 5.9% to 5.8%.
In addition, GBP investors seemed disappointed that inflation didn’t print hotter, as this would have increased the likelihood of a 50-bp rate rise at the Bank of England’s (BoE) August meeting.
Markets have been pricing in a half-percentage-point increase. Yesterday afternoon, BoE Governor Andrew Bailey said that such a move was ‘on the table’. However, he added that a 50-bp hike is ‘not locked in, and anyone who predicts that is doing so based on their own view’.
Off the back of these comments, today’s inflation data may have some traders rethinking rate hike bets.
GBP/AUD Exchange Rate Forecast: Movement Limited amid Lack of Impetus?
As the day unfolds, GBP/AUD could see limited movement as there’s no economic data out for the UK or Australia for the remainder of the day.
As a result, risk appetite may be the defining factor in the Pound ‘Aussie’ pair. If sentiment sours, Sterling may be able to regain some ground.
Meanwhile, UK politics could influence GBP, with the Tory leadership contest is nearing its end. Today MPs will vote to choose the final two candidates.