Pound Australian Dollar (GBP/AUD) Strengthens Despite RBA Warning Rates Not Yet Peaked
The Pound Australian Dollar (GBP/AUD) exchange rate is climbing this morning despite Reserve Bank of Australia (RBA) Governor Philip Lowe leaving the door open to further interest rate hikes.
At time of writing, the GBP/AUD exchange rate is around $1.8621, a 0.71% climb from this morning’s opening levels.
Australian Dollar (AUD) Unphased by Hawkish Forward Guidance
The Australian Dollar (AUD) continues to struggle for demand in the wake of the RBA opting to pause its tightening cycle. A speech from Lowe failed to lift the ‘Aussie’ despite pointing to further rate hikes down the line.
Speaking at the National Press Club in Sydney, Lowe dismissed talks of rate cuts as premature, as he points to soaring energy costs and high rents. Ending a run of 10 straight interest rate increases, Australia is currently gripped with the highest inflation rate in 30 years. However, Lowe added that the balance of risks lies with further hikes and will be dependent on data. Lowe said:
‘Board is conscious monetary policy operates with a lag, of economic uncertainties. Pause is consistent with our practice in earlier rate cycles. (It) was common to move rates multiple times, then wait for a while and move again if necessary.’
Elsewhere, a fall into contraction territory for the service sector could also be weighing on the ‘Aussie’. Despite printing better than expected, the final PMI for services came in at 48.6, down from 50.7 in February. Marking the fifth contraction in six months, elevated inflation sapped demand and new business declined at the fastest pace since November 2021. However, business sentiment remained buoyed, and employment remained strong.
Pound (GBP) Supported by Buoyant Service Sector
Meanwhile, the Pound (GBP) is enjoying a resurgence in demand, boosted primarily by a weakening ‘Aussie’.
Lending some modest support to the Pound is the final reading of services PMI. Despite a modest slowdown from 53.5 in February to 52.9, the service sector remains strong. Optimism appears to be growing, as new orders registered its highest levels since March 2022 as business activity increases for second straight month.
Tim Moore, Economics Director at S&P Global, commented on the data:
‘March data confirmed that the UK service sector returned to growth during the first quarter of 2023, supported by a sustained rebound in new orders as business and consumer confidence improved from the lows seen last autumn.’
Pound Australian Dollar Exchange Rate Forecast: RBA Financial Stability Review to Weigh on the Aussie?
Looking ahead, the Pound Australian Dollar exchange rate could see further movement with the release of the RBA’s Financial Stability Review. Providing an overview of the current financial system and any potential risks, any further hints to how the central bank intends to battle inflation could influence the ‘Aussie’.
Meanwhile, the Pound will be trading on market sentiment heading into the extended weekend. Optimism over at least one more interest rate hike from the Bank of England (BoE) could keep the Pound supported.