Pound Australian Dollar Exchange Rate Leaps as RBA Leaves Rates Unchanged
The Pound Australian Dollar (GBP/AUD) exchange rate is soaring in the wake of the Reserve Bank of Australia (RBA) surprising again and opted to leave the interest rate unchanged.
At time of writing the GBP/AUD exchange rate is trading around $1.9328, up over 1.1% from this morning’s opening levels.
Australian Dollar (AUD) Plunges on Surprise Rate Hold
The Australian Dollar (AUD) is coming under intense selling pressure in the wake of the RBA surprising the market and leaving the cash rate unchanged for the second straight meeting.
The RBA announced in the overnight session that it opted to leave the policy rate unchanged at 4.1%. This came against an expectation of a 25bps rate hike but as previously hinted, the RBA said that the pause would allow them more time to assess the impact of previous rate hikes. The central bank said:
‘Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon the data and the evolving assessment of risks.’
Preventing further losses is the expectation that the RBA’s tightening cycle is not quite yet over.
Elsewhere, further weighing on the ‘Aussie’ was disappointing data out of China. Economic activity in the world’s second-largest economy showed the manufacturing sector contracting. Falling from expansion territory of 50.5 to 49.2, the stuttering post-Covid recovery in China has soured the market mood once more.
Pound (GBP) Supported by Rate Hike Speculation
Meanwhile, the Pound (GBP) is holding onto modest gains against most of its peers as investors await the interest rate decision on Thursday.
Amid a lack of economic data, Sterling is left exposed to market sentiment and rate hike expectations. With inflation far above the target rate of 2%, many investors are now speculating whether the central bank will opt to deliver a 25 or 50bps raise.
However, preventing further gains is the final reading of the manufacturing PMI. Confirmation of the sector hitting a seven-month low further highlights the downturn in the manufacturing sector. Rob Dobson, Director at S&P, said of the latest data:
‘Output fell at the quickest pace since January, as overstocked clients, rising export losses, higher interest rates and the cost-of-living crisis coalesced to create a worrying intensification of the slump in demand.
‘Domestic and export demand are weakening, and backlogs of work are declining sharply, all of which likely presages further cutbacks to production, employment and purchasing in the months ahead.’
Pound Australian Dollar Forecast: BoE Interest Rate Decision to Boost Sterling?
Looking ahead to Thursday, the Pound Australian Dollar exchange rate could see further fluctuations when the BoE deliver their interest rate decision. A lack of data in the meantime will leave the pairing exposed to market sentiment.
If the BoE opt to deliver a 25bps hike as expected, attention will shift to the forward guidance. The central bank could hint at further tightening, which could see Sterling rally.