Pound Australian Dollar (GBP/AUD) Exchange Rate Plunges on Hawkish RBA

Pound Australian Dollar (GBP/AUD) Plummets as RBA Raises Interest Rates by 25bps

The Pound Australian Dollar (GBP/AUD) exchange rate nosedived after the Reserve Bank of Australia (RBA) indicated further rate hikes are needed.

At time of writing, the GBP/AUD exchange rate is around $1.7312, a 0.82% fall from this morning’s opening levels.

Australian Dollar (AUD) Buoyed by Further Rate Hike Expectations

The Australian Dollar (AUD) soared in the overnight session as the RBA met market expectations and raised interest rates by 25bps. Borrowing rates now sit at 3.35%, the highest level since September 2012, but the central bank reiterated the need to bring inflation down.

A fourth consecutive 25bps rate hike, and a ninth overall, has seen a total of 325bps increases this year. With inflation in Australia remaining too high, the RBA has been forced to enact the sharpest annual tightening since 1989. The policy statement that accompanied the decision noted that the board expects further interest rate hikes, buoying AUD investors. The statement from RBA Governor Philip Lowe, added:

‘The Board’s priority is to return inflation to target. High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later.’

Pound (GBP) Undermined by Slowing Retail Sales

Meanwhile, the Pound (GBP) is struggling for demand against many of its peers this morning as the British Retail Consortium (BRC) released the ‘unofficial’ retail sales figures for January. Despite growing 3.9%, the figure remains far behind inflation, and a sharp drop off from December’s 6.5% increase. Paul Martin, UK Head of Retail at KPMG, commented on the data:

‘As we head into difficult time for consumers, the short-term outlook for the retail sector remains challenging.

‘With the last interest rate rise and utility price increases heading our way, shrinking household incomes means we will continue to see a shift in what consumers buy and where they buy from.’

Elsewhere, rare positive Brexit news could be limiting losses for the Pound. Reports emerged last night that negotiations between the UK and the EU have made a breakthrough regarding the Northern Ireland protocol. An agreement on animal health and food checks are close to being done, according to a senior EU official. The Pound could climb higher on renewed hopes of avoiding a trade war.

Pound Australian Dollar Exchange Rate Forecast: BoE Speeches to Boost Sterling?

Looking ahead, the Pound Australian Dollar exchange rate could see further movement with speeches from BoE policymakers. Both Chief Economist Huw Pill and Deputy Governor Dave Ramsden are due to speak later this morning. Further hints of continued rate hikes could see the Pound recover some losses.

Meanwhile, the Australian Dollar will be left to trade on market sentiment in light of economic data. Investors will continue to digest the interest rate decision and its accompanying statement.

Danny Tingle

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