Pound Australian Dollar (GBP/AUD) exchange rate flat amid cooling AU inflation
The Pound Australian Dollar (GBP/AUD) exchange rate is trading in a narrow range today, following a sharp cooldown in Australian inflation.
At the time of writing, GBP/AUD is trading around AU$1.9278, showing little movement from the morning’s opening levels.
Australian Dollar (AUD) pressured by cooling inflation
The Australian Dollar (AUD) is wavering today, following a cooler-than-expected consumer price index print.
In the fourth quarter of 2023, inflation eased below expectations to 4.1%, versus a 4.3% forecast. This marked a significant deceleration from Q3’s reading of 5.4%, and is generating renewed interest rate cut bets.
David Bassanese, Chief Economist for BetaShares, commented:
‘The lower-than-expected December quarter consumer price index result should effectively kill off any lingering chance of an RBA rate hike next week.’
While inflation remains elevated in Australia, the print is serving to spark bets that the Reserve Bank of Australia (RBA) is at the end of its tightening cycle.
This, in turn, is sparking speculation of when the RBA will begin to cut interest rates, bringing additional pressure to the Australian Dollar.
However, a bullish market impulse is serving to cushion the risk-sensitive ‘Aussie’ and is preventing it from severe losses.
Pound (GBP) muted as markets eye BoE decision
The Pound (GBP) is treading water today, as attention turns to the Bank of England’s (BoE) interest rate decision.
Tomorrow, the BoE is expected to leave rates unchanged, and is likely to push back against market expectations of any policy loosening. While inflation remains a persistent thorn in the UK’s side, it has continued to cool and approach the central bank’s target of 2%.
However, the recent inflation print showed an increase, which is likely to prevent any imminent interest rate cuts.
Matthew Ryan, Head of Market Strategy at Ebury, commented:
‘We think another 6-3 vote is likely and will be particularly attentive to how the Bank handles communications around the possibility of further hikes and prospects for rate reductions. All in all, we think the Bank has valid reasons to lag behind its major peers in cutting rates this year and see the June MPC meeting as the earliest date for the beginning of its rate cut cycle.’
With the meeting scheduled for tomorrow, the Pound may remain side-lined over today’s trade as investors remain hesitant.
Pound Australian Dollar exchange rate forecast: Chinese data in focus
Looking ahead for the Australian Dollar, the core catalyst of movement is likely to be the latest Caixin manufacturing index.
The preliminary reading for January’s sector activity is expected to show signs of softening, and is forecast to fall from 50.8 to 50.6. If this prints accurately, it may limit the ‘Aussie’ due to its nature as a Chinese proxy-currency.
For the Pound, following the BoE’s interest rate decision, data remains hard to come by. As such, continued analysis of any accompanying forward guidance is likely to be the main driver of movement.
If the BoE maintains its ‘table mountain’ approach and remains convincing, Sterling could rally. However, if domestic headlines indicate a deteriorating economic outlook, the Pound could soften against its rivals.