Pound Australian Dollar (GBP/AUD) Exchange Rate Plummets as AUD Registers Gains
The Pound Australian Dollar (GBP/AUD) exchange rate dropped to a 3-month low during Asian trading hours, as a better-than expected AU credit report buoyed the Australian Dollar (AUD). Meanwhile, the Pound (GBP) climbed in several other exchange rates, as risk sentiment turned positive.
At the time of writing, GBP/AUD is trading at $1.8875, down almost 0.6% in the past 24 hours.
Australian Dollar (AUD) Supported by Private-Sector Credit Report
The Australian Dollar enjoyed tailwinds overnight as the country’s private sector credit report printed at 0.4% rather than 0.3% as forecast. The data marked the fastest growth since May.
Also supporting the ‘Aussie’ may be lingering optimism following the publication of Wednesday’s monthly CPI indicator. Given that the release printed above July’s reading, investors are daring to hope for a hawkish policy response from the Reserve Bank of Australia (RBA).
According to a Reuters poll undertaken earlier this week, all but two of 32 economists forecast that the RBA will hold interest rates at 4.10% on October 3; but the bank is expected hike next quarter to a peak of 4.35%.
This is because the RBA is compelled to wait until after broader quarterly inflation data has been released at the end of October. Nevertheless, Robert Carnell – an economist at ING – speculates:
‘We think if the RBA is going to hike again, it will need to be this year, as we don’t believe the current inflation backsliding will last beyond the year-end.’
Conversely, ANZ, CBA, and Westpac analysts believe the RBA to be done with its tightening cycle. Shreya Sodhani, research analyst at Barclays, observes:
‘One month’s higher inflation print especially driven by oil is unlikely to sway the RBA to hike. Indeed, trimmed inflation actually slowed…suggesting the Bank has more reason to be on hold.’
Pound (GBP) Finds Some Support on Renewed Risk Appetite
The Pound, while softening against AUD, enjoyed an uptrend against several of its peers in the past 24 hours as a combination of increased risk appetite and a positive finalised GDP reading attracted support.
As risk-off flows receded, comparatively risk-averse currencies enjoyed tailwinds: analysts at UOB Group confirmed that GBP had ‘rebounded strongly’ and subsequently, that ‘the GBP weakness that started early this month has finally ended.’
Moreover, markets are getting used to the idea of sustained higher interest rates in the UK. While the risk of a recession has not subsided, investors are hopeful that so long as further interest rate hikes aren’t imminent, the cost of housing – amongst other things – may begin to stabilise.
Weakness in the US Dollar may also be contributing to Sterling strength. USD/GBP has retreated from a 10-month high, while the USD Index (DXY) snapped a four-day winning streak; the benchmark 10-year US Treasury bond yield fell below 4.6% yesterday and closed the session in negative territory.
Furthermore, confirmation that the British economy expanded by 0.2% in Q2 has brought relief to Pound traders amidst fears of a UK recession.
GBP/AUD Exchange Rate Forecast: Chinese Data to Alter Trajectory?
Looking ahead, the release of Chinese data this weekend could affect movement in the Pound Australian Dollar exchange rate, given the close trading relationship between Australia and China.
September’s NBS manufacturing and non-manufacturing PMIs are both expected to have increased, indicating an economic recovery and possibly inspiring AUD tailwinds; the Caixin PMIs on Sunday are likewise forecast to show improvement.
On the other hand, ongoing jitters over the property sector crisis in China could undermine tailwinds. The chairman of Evergrande – a Chinese property giant – has recently been placed under police surveillance as the company struggles under more than $300bn (£247bn) of debt.