Pound Australian Dollar (GBP/AUD) exchange rate dips despite cooling Australian CPI
The Pound Australian Dollar (GBP/AUD) exchange rate is weakening today, despite cooling Australian inflation.
At the time of writing, GBP/AUD is trading at around AU$1.8971, a drop of just over 0.2% from the morning’s opening rates.
Australian Dollar (AUD) firms despite cooling inflation
The Australian Dollar (AUD) is ticking higher today, despite a cooler-than-expected set of inflation data.
The monthly consumer price index indicator found that inflation cooled to 4.3% in November, below estimations of 4.4%.
This may be serving to limit the Australian Dollar’s gains today, as it marks another rapid cooldown in inflation. With this, analysts now believe hawkish action from the Reserve Bank of Australia (RBA) is extremely unlikely.
Stephen Koukoulas, Managing Director of Market Economics, commented:
‘The inflation problem is over. The RBA was concerned about inflation and their subsequent tightening of interest rates has worked. If you hike interest rates aggressively and crunch the economy, then yes, it’s going to fall. And it’s happened.’
However, coal prices are soaring today which is allowing the ‘Aussie’ to shrug off increasing RBA rate cut bets. As one of Australia’s main exports, the increase in prices by almost 2.3% is likely contributing a significant tailwind.
Pound (GBP) wavers ahead of BoE Bailey’s testimony
The Pound (GBP) is treading water today, as investors await a testimony from Bank of England (BoE) Governor Andrew Bailey.
This afternoon, Governor Bailey and other BoE policymakers are scheduled to discuss December’s monetary policy with the UK Treasury committee. Markets are anticipating hawkish pushback from Bailey, as he is likely to try and quell bets of imminent interest rate cuts.
With the UK economy teetering on the brink of recession, the likelihood of rate cuts sooner rather than later increases. The BoE will want to avoid overtightening, and with inflation seeming on a downtrend, cuts could be necessary in the coming months.
Francesco Pesole, FX Strategist at ING, commented:
‘We remain of the view that a deterioration in economic conditions in the UK will ultimately warrant substantial BoE rate cuts (we estimate 100bp), while markets are considerably overestimating the size of the ECB easing cycle.’
Pound Australian Dollar exchange rate forecast: UK GDP expansion to lift Pound?
Looking ahead for the Pound, the core catalyst of movement is likely to be the publication of November’s GDP data on Friday.
Economists expect the UK economy to have expanded on a monthly basis by 0.3%. This could strengthen Sterling by assuaging recession anxieties, as it would aid the UK in avoiding a technical recession.
For the Australian Dollar, the main driver of movement is likely to be the latest trade data, due to print tomorrow. In November, the Australian trade surplus is forecast to have expanded to AU$7.5bn, which could indicate strong exports and lift AUD exchange rates.
Then, the latest Chinese inflation data is early Friday. Economists expect headline inflation to remain in deflation territory, with a reading of -0.4%. This could drive fears of deflation in the Chinese economy and weaken the ‘Aussie’ due to its nature as a Chinese proxy-currency.