Pound Australian Dollar (GBP/AUD) Exchange Rate Trends Up as GBP Tailwinds Unabated
The Pound Australian Dollar (GBP/AUD) exchange rate extends its upward streak this morning, continuing to firm on investors’ hopes of a hawkish Bank of England (BoE). Meanwhile, the Australian Dollar (AUD) is subdued by dwindling expectations of an upcoming interest rate hike from the Reserve Bank of Australia (RBA).
At the time of writing, GBP/AUD is trading at A$1.9852, having climbed by almost 0.6% in the past 24 hours.
Pound (GBP) Strengthened by BoE Forecasts
The Pound (GBP) is still firming as Thursday’s European session gets underway, buoyed by ongoing investor optimism at the prospect of a hawkish Bank of England (BoE).
Analysts at ING bank summarise the situation:
‘The Pound is now enjoying a post-repricing strength that looks unlikely to abate rapidly, given the lack of market-moving data and BoE speakers.’
Sterling continues to enjoy unabated tailwinds in the wake of Tuesday’s increase in average earnings and yesterday’s inflation data: the UK Consumer Price Index (CPI) for July fell 0.4% on a monthly basis while printing at 6.8% for the year. Core CPI, meanwhile, remained steady at 6.9%.
Looking ahead, however, experts consider that further gains may be capped by deepening recession fears as well as trading hesitancy in anticipation of tomorrow’s retail report. George Dibb, head of the Institute for Public Policy Research’s Centre for Economic Justice, comments:
‘There is a very real risk that a recession may soon overtake price rises as the main economic concern,’ further warning that pressing ahead with further rate hikes might kill off the UK’s economic recovery.
Australian Dollar (AUD) Dented by Expectations of Dovish RBA
The Australian Dollar has slunk lower against several peers this morning, weakened by observations that another interest rate hike from the RBA is unlikely.
Economists at Commerzbank consider: ‘the Australian labor market report for July should support the RBA’s view that it can take another pause in the interest rate cycle… the news from China should [also] make the RBA cautious about further rate hikes, as they pose a risk to the Australian economy.’
The latest employment data from Australia, released during this morning’s Asian session, indicated the jobs market may be loosening. Job creation unexpectedly declined by 14,600 to 14.03 million in July 2023, and the unemployment rate ticked up by more than expected, to 3.7%.
Following the release, the Australian Dollar dropped to $0.6366 against the safe-haven US Dollar: a nine-month low. According to the Australian Bureau of Statistics (ABS), the figures were likely impacted by the timing of school holidays in July.
Earlier this week, Chinese data disappointed, with industrial production falling unexpectedly and the unemployment rate increasing. Furthermore, retail sales increased in the year to July by far less than forecast; given the close trading relationship between Australia and China, the news continues to weigh upon the ‘Aussie’, contributing to GBP/AUD’s downturn.
GBP/AUD Forecast: UK Retail Sales to Dominate Movement?
The Pound Australian Dollar exchange rate is likely to trade on UK sales data through tomorrow’s session. Ahead of the release, further Sterling gains may be capped.
If retail activity contracted as forecast in July, the Pound may weaken, depressing GBP/AUD. On an annualised basis, the contraction in sales growth is expected to have deepened from –1% in June to –2.1% last month.
Elsewhere, risk sentiment may govern the exchange rate – volatility in the currency market is likely to support the Pound against the ‘Aussie’, given AUD’s risk-off status. Moreover, bearish trading on account of the RBA’s dovish outlook could weaken the Australian Dollar against its peers.