Pound Australian Dollar (GBP/AUD) Exchange Rate Falls as RBA Open to Larger Rate Hikes
The Pound Australian Dollar (GBP/AUD) exchange rate is weakening this morning, after the Reserve Bank of Australia (RBA) indicated it is open to larger interest rate hikes in the future.
At the time of writing, GBP/AUD has fallen to around AU$1.7670, a decline of around 0.5% from the morning’s opening rates.
Australian Dollar (AUD) Bolstered By Hawkish RBA
The Australian Dollar (AUD) is making strong gains this morning, as the Reserve Bank of Australia published their quarterly monetary policy statement.
Following on from a modest 25bps interest rate hike earlier in the month, the RBA has reaffirmed their determination to quash inflation. The report reaffirms sentiments from the RBA Governor Phillip Lowe, who stated the bank was open to larger hikes.
The report states:
‘The Board is focused on returning inflation to target and establishing a more sustainable balance of demand and supply in the Australian economy. To achieve this, the Board expects that interest rates will need to increase further.’
The potential for higher rate hikes in the future has proven enticing to investors so far today, prompting strong support.
The RBA further soothed investors by demonstrating a pragmatic approach, declaring their intention to recover from previous forecast errors.
Pound (GBP) Mixed as Markets Recover From Recession Confirmation
The Pound (GBP) is lacking direction this morning, as investors remain wary following yesterday’s confirmation that the UK had entered a recession.
After announcing their 75bps rate hike, the Bank of England (BoE) further explained that the UK economy was in a recession. They further stated that it was likely to be years long, with a bleak outlook ahead for the UK.
With a lack of other key economic data, investors are remaining cautious as they await further information from the BoE.
Speaking to CNBC, the BoE’s chief economist Huw Pill explained the bank’s policy. He stated:
‘What we are seeking to do, we’re always seeking to do, is to find that balance that gets us back to our 2% inflation target without generating unnecessary and costly problems in the real side of the economy.’
Pill is scheduled to deliver a speech later today. He may provide more clarification on the BoE’s future policy, and the extent of the UK’s recession.
Pound Australian Dollar Exchange Rate Forecast: UK Recession to Dent Pound Further?
Looking ahead to next week for the GBP/AUD exchange rate, the core catalyst of movement is likely to be domestic news from the UK.
Due to the confirmation of a recession, any further developments or explanation may serve to wound Sterling. Similarly, if the BoE continues to remain dovish, GBP could sink further.
For AUD, Monday brings the release of the Westpac Consumer Confidence index. With a decline expected, the ‘Aussie’ may weaken.
Elsewhere, Chinese data could serve to boost AUD due to its nature as a proxy-currency for China. With Monday also bringing China’s balance of trade figure for October, the expected surplus increase could boost the ‘Aussie’.