The Pound Australian Dollar (GBP/AUD) exchange rate gained last week amid evidence of cooling Australian inflation. The bulk of these gains have since been reversed after the Reserve Bank of Australia (RBA) surprised overnight by raising interest rates by 25bps.
What’s Been Happening: Australian Dollar Weakens as Inflation Cools
The GBP/AUD exchange rate saw thin trading conditions at the start of last week. A cautious market mood saw the Australian Dollar (AUD) fall which boosted the pairing.
A drop in first quarter Australian inflation added to AUD’s woes on Wednesday. The ‘Aussie’ nosedived as inflation fell to 7%, sparking a pullback in RBA rate hike bets.
Bank of England (BoE) bets bolstered the Pound (GBP) on Wednesday as markets continued to coalesce around a 25bps interest rate increase. An improvement in risk appetite limited any major gains for GBP/AUD off the back of this, though.
The Australian Dollar then stumbled on Friday despite hotter-than-forecast PPI data. The ‘Aussie’ came under pressure from market expectations of pause in policy tightening from the RBA.
At the same time, the Pound closed the week on a high, amid the broad weakness of its peers.
Weekly highlights
- RBA Monetary Policy Statement
Following today’s surprise 25bps rate hike, markets will be looking for signals regarding the RBA’s forward path on Friday. Could the ‘Aussie’ jump off the back of any hawkish hints?
- Australian Retail Sales
March’s retail sales are expected to edge higher by 0.3% on Wednesday. Will signs of resilience in the Australia economy see AUD tick higher?
- UK Final PMIs
The final reading of the April’s service sector PMI is expected to confirm the highest reading in 12 months. Will this lend support to the Pound?
GBP/AUD Forecast
The Pound may continue to firm this week if markets remain convinced of a 25bps hike from the BoE at their May meeting. Meanwhile the Australian Dollar may extend its if Chinese private sector data improves as forecast.