Pound Australian Dollar (GBP/AUD) Stumbles as US Data Disappoints, Spurring Risk Sentiment
(Updated 18/7/23, 17:00)
The Pound Australian Dollar (GBP/AUD) exchange rate is encountering increased selling pressure this afternoon as further downbeat US data buoyed market moods. The risk-sensitive ‘Aussie’ is enjoying the return of risk appetite as US retail sales disappointed. With further hints of the Federal Reserve soon to be ending their aggressive rate hiking cycle, global growth fears are subsiding.
At time of writing, the GBP/AUD exchange rate is around $1.9155, a 0.21% fall from this morning’s opening levels.
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GBP/AUD Fluctuates as RBA Opens Door to Further Rate Hikes
The Pound Australian Dollar exchange rate is rangebound after hawkish minutes from the Reserve Bank of Australia (RBA) revealed further tightening may be required.
At time of writing, the GBP/AUD exchange rate is around $1.9197, relatively unchanged from this morning’s opening levels.
Australian Dollar (AUD) Supported by Potential Further Tightening
The Australian Dollar (AUD) is trading sideways today against its peers despite a hawkish RBA. Minutes published in the overnight session revealed that the central bank seriously considered another interest rate hike and opened the door to further tightening. The minutes added:
‘Board considered holding rates steady or hiking by 25 bps. Strong case for both, but board judged arguments for holding steady were stronger. Board agreed some further tightening may be required, would reconsider at august meeting. Current stance of monetary policy was “clearly restrictive” and would become more so.’
However, lingering concerns over the economic recovery of China, Australia’s biggest trading partner, continue to weigh on market sentiment. Beijing have since announced an 11-point plan to spur consumer spending. China’s Commerce Ministry revealed that they will encourage companies to open online service platforms, and will also increase credit support to boost household goods consumption.
Pound (GBP) Subdued ahead of Inflation Data
Meanwhile, the Pound (GBP) remains relatively quiet ahead of the latest inflation reading tomorrow. Investors are expecting further tightening from the Bank of England (BoE) with inflation set to remain far above the target rate. But concerns over the fragility of the UK economy could be limiting gains.
The biggest fall in food inflation since the peak in March could be welcome news to GBP investors this morning. Grocery price inflation has dropped to its lowest level this year after average food prices were 14.9% higher YoY. Fraser McKevitt, Head of Retail and Consumer Insight at Kantar, commented on the fall:
‘Grocery price inflation has now been falling for four months in a row. That will be good news for many households although, of course, the rate is still incredibly high.’
Pound Australian Dollar Exchange Rate Forecast: UK Inflation to Boost Sterling?
Looking ahead, the Pound Australian Dollar exchange rate could see further fluctuations with the latest inflation data for the UK. Inflation is remaining more persistent than expected, fuelled by labour shortages and 45-year-high food inflation.
Despite another expected softening, inflation is still set to remain far higher than the central bank’s target rate of 2%. A predicted easing to 8.2% will do little to deter the BoE from its tightening cycle, especially with core inflation set to linger unchanged at 7.1%. Sterling could rally on the prospect of further tightening.
Meanwhile, the Australian Dollar will be trading on market sentiment until Thursday with the release of the latest labour market data. The jobless rate is expected to remain steady at 3.6%, but job creation appears to be slowing. If the data surprises to the upside, the ‘Aussie’ could soar on bolstered rate hike bets amid a persistently tight labour market.