GBP/AUD Exchange Rate Soars by Over 1% as Markets Turn Risk-Averse
The Pound Australian Dollar (GBP/AUD) exchange rate is spiking up this morning as risk aversion dampens support for the Australian Dollar (AUD) alongside a perceived-dovish commentary from the Reserve Bank of Australia (RBA).
At the time of writing, GBP/AUD is trading at A$1.7633, up 1.1% from today’s opening levels.
Australian Dollar (AUD) Drops Following RBA Decision
The Australian Dollar is plummeting against its peers today in the wake of the RBA’s August interest rate decision. Australia’s central bank hiked rates by 50bps as expected, but gave a relatively dovish commentary, which sapped support for the currency.
In its statement, the RBA said the hike was a further step in policy ‘normalization’ but omitted the phrase ‘extraordinary stimulus’; furthermore, the bank’s governor Philip Lowe, said Australia’s economy would grow slower this year than the bank had initially forecast in its May statement.
Lowe added that while the Board expects to take further steps in the process of normalising monetary conditions, rates are not on a pre-set path.
The chief economist at the Commonwealth Bank (CBA), Gareth Aird, responds to Lowe’s comments:
‘We do not believe they are in a rush to take the policy rate much above their estimate of neutral [about 2.5%]… Indeed we expect that once the cash rate gets to around that level the RBA will pause to assess the impact that their policy tightening has had on the economy.’
The RBA has lagged behind most other central banks in raising the cost of borrowing, despite Q2 inflation printing at the fastest annual pace since the introduction of the goods and services tax.
Pound (GBP) Weakens Overall on Risk-Off Mood
The Pound (GBP) is sinking against the majority of its peers so far this morning as the currency faces headwinds relating to the UK’s cost-of-living crisis and an overall risk-off mood.
Exorbitant living costs remain in focus in the UK as house prices rise at 11% per year; research firms Cornwall Insight has also upped forecasts for the cost of energy bills this winter.
The energy price cap is on track to rise to £3,615 a year from January, say analysts, rather than £3,363 as estimated last month:
‘What we are seeing is the extent to which there is so much uncertainty regarding the ongoing availability of gas from Russia to the European Union,’ commented Craig Lowery, a principal consultant at Cornwall Insight.
Elsewhere, geopolitical tensions between the US and China have brought down market sentiment: reports that US House of Representatives Speaker Nancy Pelosi is planning to visit Taiwan triggered a warning from the Chinese foreign ministry that such a visit would have serious consequences.
Confirming China’s position, Global Times commentator Hu Xijin tweeted that Beijing has formulated a series of countermeasures should Pelosi choose to visit Taiwan, including military actions.
The rift between America and China, the world’s two largest economies, caused safe-haven flows to direct financial markets in the Asian session.
GBP/AUD Exchange Rate Forecast: Chinese Data to Influence the ‘Aussie’?
Looking ahead, tomorrow’s docket features finalised PMI data for both the UK and the Australian Dollar, as well as China’s Caixin services index.
Neither of the finalised PMIs are likely to have an impact upon trading unless they print significantly above or below earlier estimates.
Chinese data may have some effect, however, if service-sector activity expanded in July as expected. If the data prints as forecast, the ‘Aussie’ may enjoy tailwinds in its role as a proxy for China’s economy.