Pound Australian Dollar (GBP/AUD) Exchange Rate Slips as Hawkish Signals from RBA Grow

Pound Australian Dollar (GBP/AUD) Exchange Rate Falls as Risk Appetite Improves

(Updated 16:26 05/05/23)

The Pound Australian Dollar (GBP/AUD) exchange rate has continued to decline today. A further improvement in risk appetite could be pulling the pairing lower.

The hawkish signals from the Reserve Bank of Australia (RBA) may have also continued to dampen enthusiasm for GBP/AUD today. The RBA’s latest monetary policy statement outlined the risks of persistently high inflation.

On the other hand, the exchange rate’s losses could be being cushioned by Bank of England (BoE) rate hike bets today. Markets are still anticipating a 25bps interest rate hike next week.

James Smith, Antoine Bouvet, Chris Turner of ING had the following analysis of the BoE’s forward path:

‘Hawkish inflation and wage data last month point to another 25 basis-point rate Bank of England rate hike on Thursday. But the Bank’s recent emphasis on the lagged impact of past tightening suggests the bar for subsequent moves remains high. Unless there’s some really unwelcome economic news over the next few weeks, we expect a pause in June.’

At time of writing the GBP/AUD exchange rate is at around AU$1.8722, which is down roughly 0.4% from this morning’s opening figures.

Original article continues below:

Pound Australian Dollar (GBP/AUD) Exchange Rate Drops as RBA Bets Increase

The Pound Australian Dollar exchange rate is falling today. Increased Reserve Bank of Australia (RBA) bets may be pushing the pairing higher. A positive risk tone may also be supporting gains for GBP/AUD.

Conversely, a slowdown in Chinese services performance and Bank of England (BoE) rate hike bets may be limiting the exchange rate’s gains.

At time of writing the GBP/AUD exchange rate is at around AU$1.8735, which is down roughly 0.3% from this morning’s opening figures.

Australian Dollar (AUD) Lifted by Hawkish RBA Signals

The Australian Dollar (AUD) is climbing today. The risk-sensitive ‘Aussie’ may be benefitting from a return of global risk appetite. Additionally, increased odds of further policy tightening from the RBA could be bolstering AUD.

The fresh bets on additional RBA hikes come in the wake of the central bank’s latest monetary policy statement.

The central bank signalled that the risk of persistently high inflation remained a concern due to high energy costs and soaring private rents.

In the statement, the RBA stated:

‘The longer inflation remains above target, the greater the risk that inflation expectations rise and price- and wage-setting behaviour might adjust accordingly. The end result would be even higher interest rates and a larger rise in unemployment would be required to bring inflation back to target.’

The ‘Aussie’ may be seeing its gains capped by a surprise slowdown in China’s services sector, though. April’s PMI fell to 56.4 versus the forecasts increase to 58. Whilst the data represented a fourth consecutive month of growth, weak domestic demand is thought to be weighing on the sector.

Pound (GBP) Gains amid BoE Bets, Slips against AUD amid Risk-On Mood

The Pound (GBP) is firming against many of its peers today. A risk-on market mood may be pulling the currency lower against the Australian Dollar, however.

Bank of England rate hike bets may be continuing to buoy Sterling today. Markets are anticipating a 25bps interest rate increase from the central bank next week.

Upbeat macro data earlier this week may also be strengthening GBP today. An upward revision in service sector output on Thursday may be shoring up confidence in the UK’s economic outlook.

On the other hand, the prospect of political instability in the UK may be weighing on GBP today.

GBP/AUD Exchange Rate Forecast: Will BoE 25bps Hike Prompt any Movement in Sterling?

Ahead of the BoE’s interest rate decision next week, the Pound could see movement off the back of the British Retail Consortium’s (BRC) April sales volumes data on Tuesday.

The forecast 25bps interest rate hike from the Bank of England on Thursday may have little effect on the Pound. Markets have already largely priced in such a move and will instead be watching for any signals regarding the BoE’s forward policy. Any hints of a June hike could push Sterling higher.

On Friday, March’s GDP figures could lend support to the Pound if they print as forecast. The UK’s economy is expected to have expanded by 0.1%.

Looking to the coming week for the Australian Dollar, the currency could be lifted on Monday by a rise in April’s business confidence.

On the other hand, a forecast drop in May’s consumer confidence on Tuesday could gap any gains for the ‘Aussie.

The latest Chinese inflation figures on Thursday could bolster the Australian Dollar if they print as forecast. April’s inflation is expected to tick higher which could help reducer fears of disinflation in the world’s second-largest economy.

Gareth Monk

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