Pound Australian Dollar (GBP/AUD) Dips as Australian Inflation Hits Highest Since 1990
The Pound Australian Dollar (GBP/AUD) exchange rate is plummeting this morning in the wake of Australian headline CPI printed above expectations at 7.8%.
At time of writing, the GBP/AUD exchange rate is around $1.7353, a 0.75% jump from this morning’s opening levels.
Australian Dollar (AUD) Buoyed on Bolstered Rate Hike Bets
The Australian Dollar (AUD) is enjoying substantial success against its peers this morning after the headline CPI printed above market expectations and hit the highest level since 1990. Improved interest rate hikes from the Reserve Bank of Australia (RBA) are buoying investors’ moods.
Boosted by ever-increasing food prices and fuel, the annualised inflation rate climbed from 7.3% in Q3 to 7.8% in Q4. Beating market forecasts of a modest climb, investors are now reassessing the Reserve Bank of Australia’s (RBA) monetary policy going forward. Elevated interest rate expectations have seen the ‘Aussie’ soar. Adelaide Timbrell, Senior ANZ Economist, commented:
‘Whether it’s petrol, whether it’s food, they really come up quite strongly and increase that part of the (CPI). And they can come down quite quickly as well.
‘(However), the part of inflation that the Reserve Bank cares about will still be way above the (target) band at the end of 2023.’
Pound (GBP) Undermined by Gloomy Economic Outlook
Meanwhile, the Pound (GBP) remains under pressure and is seeing mixed success against its peers. A thin trading calendar has left Sterling exposed to domestic woes.
As inflation remains sky-high, and government borrowing more than doubled in December, the outlook for the UK grows darker. The Office for Budget Responsibility (OBR) has warned the Treasury that Chancellor Jeremy Hunt had overestimated plans for medium-term growth for the UK. Hunt will be faced with a multibillion-pound black hole at the spring budget, leaving UK growth plans in limbo.
Meanwhile, political volatility continues to weigh on the Pound. Calls are growing for Nadhim Zahawi’s resignation, adding more pressure on the Conservative party. The latest in a long line of controversies surrounding the Tories is hardly likely to inspire much confidence in GBP investors. With growing calls for a general election, and the uncertainty surrounding the leadership in the UK could keep a firm lid on Sterling.
Pound Australian Dollar Exchange Rate Forecast: Dire UK Outlook to Keep Sterling Under Pressure?
Looking ahead, the Pound Australian Dollar exchange rate could be left open to external pressures and market sentiment.
Next week sees the crucial Bank of England (BoE) interest rate decision. Until then, the media blackout from BoE policymakers could see investors look to the state of the economy for further clues. Despite elevated rate hike expectations, the precarious state of the UK economy is hardly going to inspire much confidence and could keep the Pound under pressure.
As for the ‘Aussie’, global risk sentiment is likely to be the biggest driver. Any negative headlines from China or Ukraine could weigh on risk appetite, and impact the risk-sensitive Australian Dollar.