Pound Australian Dollar (GBP/AUD) Surges on Downbeat Market Sentiment
(Updated 13/5/23, 16:30)
The Pound Australian Dollar (GBP/AUD) exchange rate is climbing considerably in the wake of stronger-than-expected US labour market data. A surprise increase in job openings revealed a a labour market that is still tight, opening the door to further rate hikes from the Federal Reserve. An already subdued market mood was made worse now with fears of surging borrowing costs weighing on global growth concerns.
At time of writing, the GBP/AUD exchange rate is around $1.9141, a 0.51% leap from this morning’s opening levels.
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GBP/AUD Fluctuates amid Souring Market Mood
The Pound Australian Dollar exchange rate is trading erratically in the wake of stronger-than-expected Australian inflation. However, a downbeat market mood offset gains for the risk-sensitive ‘Aussie’.
At time of writing, the GBP/AUD exchange rate is around $1.9074, relatively unchanged from this morning’s opening levels.
Australian Dollar (AUD) Undermined by Poor Chinese Data
The Australian Dollar (AUD) struggled to find increased demand this morning despite consumer price index (PCI) inflation edging higher than expected. However, disappointing data from China weighed on the risk-sensitive ‘Aussie’.
The Australian Bureau of Statistics revealed that against expectations of a 6.4% annualised increase, CPI came in at 6.8%. Accelerating from March’s 6.3%, it was the first increase in annual inflation in four months.
Failing to provide a boost to the ‘Aussie’ were strong hints of further tightening from Reserve Bank of Australia (RBA) Governor Philip Lowe. Testifying before the Senate Economics Legislation Committee, Lowe warned that inflation could become entrenched and also causing unemployment to rise, along with interest rates. Commerzbank economists commented that despite hotter-than-expected inflation, a pause is still more probable at the next policy meeting:
‘The price index excluding volatile goods fell somewhat, but was still at high levels at 6.5%. In this respect, an interest rate hike next week is probably not completely off the table, another surprise is quite conceivable.
‘Even if the probability of a rate hike is now seen somewhat higher on the market, the majority still expects a pause. Therefore, the inflation release could not support the AUD this morning.’
Elsewhere, with further signs pointing to the post-Covid restriction bounce is petering out in China, manufacturing PMI slipped to 48.8. Falling to a five-month low, it also signalled the second straight month of contracting factory activity. Preventing any further slides is non-manufacturing PMI managed to stay modestly elevated at 54.4.
Pound (GBP) Quiet amid Thin Trading Calendar
Meanwhile, the Pound (GBP) is holding onto modest gains amid a lack of economic data. A souring market mood is seeing the safer Pound cling to elevated interest rate hike bets as a safety net.
With inflation surprising to the upside last week, further tightening from the Bank of England (BoE) is on the cards. A 25bps rate hike is all but priced in at the next policy meeting in June, but the probability of further tightening grows. With inflation still far above the central bank’s target rate of 2%, markets are now expecting the BoE to continue raising interest rates to 5.5% by the autumn. GBP investors remain buoyant on the prospect of further tightening, preventing a slide.
Pound Australian Dollar Exchange Rate Forecast: Hawkish BoE to Bolster the Pound?
Looking ahead, the Pound Australian Dollar exchange rate could see further movement with a speech from BoE policymaker Catherine Mann. One of the more hawkish members, and further hints at the central bank’s monetary policy could spur Sterling. Mann has previously called for larger rate hikes, so in light of recent developments, a case may be presented for a larger increase.
Meanwhile, the Australian Dollar could see further fluctuations with a flurry of data releases tomorrow. Final manufacturing PMIs and retail sales for Australia could dent the ‘Aussie’ if data prints to forecast. Elsewhere, the Caixin manufacturing PMI is unlikely to provide much of a boost as the sector is expected to remain in contraction territory.