Pound Australian Dollar (GBP/AUD) Rallies on Central Bank Divergency
(Updated 30/8/23, 16:50)
The Pound Australian Dollar (GBP/AUD) exchange rate is extending its lead from this morning amid expectations of the Bank of England (BoE) continuing their aggressive tightening. An upbeat market mood also contributed in improving the appeal of risk-sensitive currencies and Sterling is finding increased support.
At time of writing, the GBP/AUD exchange rate is around $1.9595, a 0.43% jump from the morning’s opening levels.
Original article continues below…
GBP/AUD Firms as RBA Hike Rate Bets Slashed
The Pound Australian Dollar exchange rate is strengthening in the wake of inflation in Australia cooling further than expected to 4.9%.
At time of writing, the GBP/AUD exchange rate is around $1.9566, a 0.27% climb from the morning’s opening levels.
Australian Dollar (AUD) Undermined by Pared Rate Hike Expectations
The Australian Dollar (AUD) is under pressure this morning after the Australian Bureau of Statistics (ABS) reported that inflation eased to its lowest level in 17 months. Consumer price inflation climbed 4.9% in the year to July. After an annual rise of 5.4% last month, this month’s figure missed forecasts of 5.2%.
The biggest contribution to cooling inflation was fuel, which dropped 7.6%, however, both housing and food prices continued to rise (7.3% and 5.6% respectively). Core inflation, excluding volatile items such as food and energy, slowed to 5.8% from 6.1%. Reserve Bank of Australia (RBA) Treasurer Jim Chalmers commented on the latest data:
‘It’s pleasing to see inflation is moderating but we know it will remain higher than we’d like for longer than we’d like.
‘This data makes it very clear our energy price relief plan is working as intended by helping to take some of the sting out of power price rises when people need it most.’
However, a fall in inflationary pressures is also a fall in rate hike expectations. With a further-than-expected cooldown, it gives further evidence for the RBA to leave the rates unchanged at the next policy meeting next week. Economists are now predicting that the next move could be an interest rate cut. Slashed rate hike expectations are weighing heavy and could keep a firm lid on the ‘Aussie’.
Pound (GBP) Supported by Policy Divergence
Meanwhile, the Pound (GBP) is finding renewed strength against many of its peers this morning despite a lack of major economic data. Elevated interest rate hike bets could be cushioning Sterling despite the uncertain outlook for the UK economy.
However, preventing any further gains are signs that the housing market could be slowing. Mortgage approvals fell to 49,400 in July, down from 54,600 in July. A bigger-than-expected decline are spooking investors as soaring interest rates appear to be dampening demand. With the Bank of England (BoE) set to continue their relentless tightening cycle, further pressure on the housing market could worsen.
Pound Australian Dollar Exchange Rate Forecast: Dovish BoE to Dent Sterling?
Looking ahead, the Pound Australian Dollar exchange rate could see further movement with a speech from BoE Chief Economist Huw Pill. Amid the economic anxieties gripping the UK, Pill could highlight the rising recession risks, the Pound could stumble.
Meanwhile, trading calendar for the Australian Dollar remains sparse, so market sentiment could be the biggest driver.