GBP/AUD exchange rate trends sideways as investors digest data
The pound Australian dollar (GBP/AUD) exchange rate is trading in a narrow range this morning, with both currencies experiencing tailwinds amid a risk-on market mood. Recent hawkish rhetoric from the Bank of England (BoE) buoys the pound (GBP), while Australian dollar (AUD) investors remain upbeat over yesterday’s Australian inflation release.
At the time of writing, GBP/AUD is trading at A$1.9170, having climbed by almost 0.3% in the past 24 hours.
Australian dollar (AUD) supported by inflation data, risk-on mood
The Australian dollar is firming against several peers today, though gains against the pound are limited by strong sterling performance. Boosting the currency are lingering tailwinds following evidence of higher-than-expected inflation in Q1 2024.
Signs that price pressures in Australia remain persistent are likely to prompt a hawkish response from the Reserve Bank of Australia (RBA). As several major central banks revise their interest rate-cutting schedules to reflect stubborn inflation, the RBA may be compelled to follow suit.
Westpac chief economist and former RBA assistant governor Luci Ellis commented yesterday:
‘We expect the Board to keep rates on hold in May, and have pushed out the date of the first rate cut to November this year, previously September.’
In light of anticipated hawkishness from Australia’s central bank, the 10-year yield on Australian government bonds is approaching a 5-month high, surging above 4.49%.
Also boosting ‘Aussie’ morale is a risk-on mood amid easing fears of conflict escalation between Israel and Iran. A risk-sensitive currency, bullish momentum in the currency market supports the currency.
As multiple factors lend support to the Australian Dollar, AUD appears to be little affected by continued contraction in the nation’s manufacturing sector. Instead, analysts are focused upon strong service-sector expansion, as April’s flash data printed above forecasts earlier in the week.
Pound (GBP) buoyed by strong economic outlook
The pound is trending broadly higher today as strong risk sentiment combined with signs of a resilient British economy boost investor morale.
As geopolitical tensions in the Middle East are judged to pose less of a threat to international safety than previously thought, a wave of bullish momentum supports GBP alongside other risk-on currencies.
Signs that the UK economy is rebounding after a stunted recovery are further boosting the Pound. April’s data revealed on Tuesday that new business volumes have increased across the private sector, while expansion in the service sector over the course of the month far exceeded economists’ estimates.
Meanwhile, expectations for the Bank of England’s (BoE) monetary policy trajectory are uncertain. Hawkish comments from chief economy Huw Pill and policymaker Jonathan Haskel in the past few days lent support to the pound, reducing expectations of monetary policy divergence between the BoE and the Federal Reserve. Yet recent comments from Governor Andrew Bailey suggest that rate cuts may occur sooner rather than later.
Nevertheless, Bailey’s assurances that inflation is likely to drop over the next few months appear to have reassured investors. While such forecasts complicate the Bank of England’s policy outlook, they indicate easing cost-of-living pressures; which is likely to buoy consumer morale and may help boost spending.
GBP/AUD exchange rate forecast: AU, US data in focus
The Pound Australian Dollar exchange rate is likely to trade tomorrow initially upon fresh inflation data from Australia, and subsequently on the outcome of the latest US inflation data.
Unlike consumer price inflation indicators, Australia’s Producer Price Index (PPI) is expected to show that producer inflation eased in Q1 of this year, dropping from 0.9% to 0.6% on a quarterly basis. If the data prints as expected, it could undermine earlier indications that prices are still climbing across the board, complicating the RBA’s monetary policy response.
Into the European session, US PCE price index data is due to be released for the month of March. The Fed’s preferred measure of inflation, the index is likely to have an effect on the bank’s assessment of the economy. If core inflation remained unchanged on a monthly basis and is shown to have eased over the course of the year, rate cut bets may be brought forward.
Volatility in the US dollar (USD) as a consequence of tomorrow’s inflation data may spark risk-off trade: uncertainty regarding monetary policy in the world’s largest economy has implications for the global currency market. If this is the case, GBP/AUD is likely to climb as the Australian dollar is the more risk sensitive of the two currencies.