GBP/AUD Exchange Rate Buoyed by Risk-Off Flows
(Updated 14:30 20/6/2022) The Pound Australian Dollar (GBP/AUD) exchange rate remains well supported this afternoon as a risk-off mood continue to prevail.
Investors appear increasingly concerned by the outlook for the Chinese economy. Which coupled with the prospect of more interest rate hikes is weighing on global growth expectations.
While the Pound is holding its ground against the Australian Dollar, elsewhere it has started to relinquish some ground.
GBP investors appear a little unnerved ahead of the BoE’s upcoming interest rate decision, amid suggestions the UK economy could be tipped into a recession if rates rise as high as 6%.
Original article continues below:
Pound Australian Dollar Exchange Rate Strikes Two-Week High
The Pound Australian Dollar (GBP/AUD) exchange rate is trading at a two-week high this morning, after surging in the wake of the minutes from the Reserve Bank of Australia’s (RBA) June policy meeting.
At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8807. Up roughly 0.7% from today’s opening rate.
Australian Dollar (AUD) Plunges Following RBA Minutes
The Australian Dollar (AUD) is struggling this morning after nosediving in overnight trade, after the publication of the minutes from the RBA’s latest meeting.
The ‘Aussie’ tumbled as the minutes from June’s meeting revealed the RBA’s decision to raise rates was ‘finely balanced’.
The RBA minutes read:
‘Members recognised the strength of both sets of arguments, concluding that the arguments were finely balanced. They judged, though, that the case to raise the cash rate at this meeting was the stronger one.’
Evidence that the RBA almost left interest rates on hold this month casts uncertainty over future hikes, to the disappointment to AUD investors.
Adding to the pressure on the Australian Dollar this morning are fresh concerns over China’s economy.
The People’s Bank of China (PBoC) moved to cut two of its leading benchmark rates earlier today in an effort to shore up its sputtering economic recovery.
AUD investors fears a slowdown in China could weaken demand for a number of Australia’s key exports.
Pound (GBP) Underpinned by BoE Rate Expectations
The Pound (GBP) is well positioned to take advantage of the Australian Dollar’s weakness this morning. Sterling remains well supported ahead of the Bank of England’s (BoE) upcoming interest rate decision.
The BoE will conclude its June policy meeting on Thursday. The meeting is widely expected to see the BoE raise rates by 25bps, although a 50bps increase isn’t being ruled out.
Hotter-than-expected inflation have seen BoE rate hike expectations hardened over the past month. The Pound rallying amid speculation interest rates will rise to 5.5% by the end of 2023.
There’s a chance the BoE rate decision could propel the Pound Australian Dollar exchange rate back above AU$1.90. Especially if the bank opts for a larger hike.
Pound Australian Dollar Forecast: Strong UK Inflation to Boost Sterling?
The UK’s consumer price index could propel the Pound Australian Dollar (GBP/AUD) exchange rate even higher on Wednesday.
May’s CPI figures are expected to report headline inflation slowed modestly from 8.7% to 8.4%. Core inflation if forecast to hold at a 31-year high of 6.8%.
Another hot inflation reading ahead of the BoE’s rate decision on Thursday could turbocharge the Pound if it boosts expectations for a 50bps hike.
Meanwhile, the Australian Dollar likely faces an uphill battle to reverse its recent decline. An increasingly cautious market mood likely limiting demand for the risk-sensitive currency.