Pound Australian Dollar (GBP/AUD) Weekly Forecast: Exchange Rate Rises on AU Inflation Miss

The Pound Australian Dollar (GBP/AUD) exchange rate firmed last week, as AU inflation missed forecasts.

GBP/AUD has opened today’s session trending down despite weaker-than-expected Chinese data, which may be weighing upon the Australian Dollar (AUD).

What’s Been Happening: UK Retail Sales Weaken, AU Inflation Misses Estimates

GBP/AUD sank slightly at the beginning of the week on mixed UK data from the Confederation of British Industry (CBI): the UK’s retail sales balance fell to its weakest level in sixteen months.

The Australian Dollar simultaneously enjoyed support as iron ore prices rallied and investors forecast hawkish action from the Reserve Bank of Australia (RBA).

Subsequently, the Pound (GBP) trended up against the ‘Aussie’ as AU inflation missed forecasts of 6.2%, instead printing at 6.1%.

Despite the miss, traders worried that interest rates may have to more than double to control inflation. The release represented the highest print since Q2 2001.

Later in the week, weaker-than-expected retail sales dampened support for the ‘Aussie’ further. Meanwhile, Sterling inched higher against AUD, buoyed by hawkish rate hike bets for the Bank of England (BoE).

A Reuters poll found that a 25bps rise is most likely, but that the possibility of a 50bps hike remains on the table.

Three Things to Watch Out for This Week

  1. Interest Rate Decisions
    Both the RBA and the BoE are expected to hike interest rates this week. If the Bank of England hikes by 50bps rather than the 25bps forecast, GBP may climb.
  2. AU Trade Balance
    Australia’s trade surplus is expected to have dropped to A$14bn in June, potentially sapping AUD support.
  3. Australian Services Data
    Australia’s Ai services index for July is forecast to fall to 48. If this occurs, the ‘Aussie’ could experience headwinds.

Pound Australian Dollar Forecast

Central bank dynamics are likely to have the most significant impact upon GBP/AUD this week: if the RBA strike a hawkish tone, the Pound Australian Dollar may weaken through the first half of the session.

Elsewhere, weaker risk sentiment could subdue AUD against the Pound, while stronger Chinese data could lend tailwinds.

Olivia Evershed

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