Pound Australian Dollar (GBP/AUD) Weekly Forecast: Exchange Rate Hit Four-and-a-Half Year Low

The Pound Australian Dollar (GBP/AUD) exchange rate dropped to a four-and-a-half-year low last week as disappointing data and political turmoil weighed upon the Pound (GBP) while the Australian Dollar (AUD) was buoyed by optimistic comments from the Reserve Bank of Australia (RBA).

What’s Been Happening: UK Inflation Hits 9.4%

The release of Tuesday’s UK inflation data presented the most significant trading stimulus for the Pound, as it spiked to a fresh 40-year high of 9.4%.

Instead of being encouraged, GBP investors responded bearishly to the data, which highlighted the UK’s escalating cost-of-living crisis. Uncertainty over the Bank of England (BoE)’s next move also applied downside.

Meanwhile, hawkish comments from the RBA’s Michele Bullock and Governor Philip Lowe supported the ‘Aussie’ on Tuesday and midweek.

The central bank’s meeting minutes confirmed that members were considering either a 25 or 50bps rate hike at the next meeting.

Toward the end of the week, a fall in UK retail sales further subdued Sterling, adding to headwinds over mixed employment data. While sales fell by less than expected, a broad trend of decline illustrated the damage inflicted on purchasing power by high inflation.

Three Things to Watch Out for This Week

  1. Australian Inflation
    Inflation is expected to have risen by 1.1% in Q2 2022, potentially buoying the ‘Aussie’ on increasing RBA rate hike bets.
  2. AU Retail Sales
    Preliminary retail data is expected to reveal an increase in June’s sales, lending possible AUD upside.
  3. UK CBI Data
    The UK’s distributive trades retail sales balance is forecast to fall in July to -9 – if this occurs, Sterling is likely to weaken against its peers.

Pound Australian Dollar Forecast

Australian data looks as if it will paint a more optimistic picture of the AU economy than UK data of its counterpart.

Furthermore, a lack of significant UK economic releases means the Pound may trade on external factors such as the contest for the position of Prime Minister – which could send GBP lower on account of the uncertainty the competition represents.

 

Olivia Evershed

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