Pound Australian dollar (GBP/AUD) exchange rate static despite upbeat IMF forecasts
Article updated 16:36, 21/5/2024
The pound Australian dollar (GBP/AUD) exchange rate is wavering this afternoon, despite an improved assessment of the UK’s economic outlook.
The International Monetary Fund (IMF) upgraded the UK’s growth outlook, anticipating the UK economy to grow by 0.7% this year.
The IMF commented:
‘With growth recovering faster than expected, the UK economy is approaching a soft landing, following a mild technical recession in 2023. CPI inflation has fallen faster than was envisaged last year and is projected to return durably to target in early 2025.’
However, a muted market mood limited the pound’s gains, due to its increasingly risk-sensitive nature.
At the time of writing, GBP/AUD is trading at around AU$1.9070, showing little movement from the morning’s opening levels.
Original article continues below:
Pound Australian dollar exchange rate muted amid easing UK inflationary pressures
The pound Australian dollar exchange rate is flat this morning, as UK inflationary pressures continue to ease.
At the time of writing, GBP/AUD is trading at around AU$1.9068, showing little movement from Tuesday’s opening rates.
Pound (GBP) undermined by cooling grocery inflation
The pound (GBP) is on the backfoot this morning, as a lack of impactful data shifts the focus to more minor releases.
The latest grocery inflation data from analyst group Kantar is likely having an impact on GBP. The group found that UK food inflation had cooled to its lowest level since October 2021, printing at 2.4% for May.
Fraser McKevitt, Head of Retail and Consumer Insight at Kantar, commented:
‘Grocery price inflation is gradually returning to what we would consider more normal levels. It’s now sitting only 0.8 percentage points higher than the 10-year average of 1.6% between 2012 and 2021, which is just before prices began to climb.’
This is weighing on the pound by setting the stage for tomorrow’s inflation print. With grocery prices continuing to fall, this may signal that consumer prices could follow suit.
Australian dollar (AUD) supported by hawkish RBA minutes
The Australian dollar (AUD) is being underpinned this morning by hawkish meeting minutes from the Reserve Bank of Australia (RBA).
The minutes released earlier today showed the RBA deliberated over an additional interest rate hike. As inflation has remained a persistent issue in Australia, the RBA may see the need for future policy tightening.
The minutes stated that:
‘A higher cash rate might also be required, even with ongoing weakness in aggregate demand, if other factors slowed the pace of disinflation. Members observed that this could occur if trend productivity growth turned out to be weaker than assumed, unless wages growth were to moderate in response.’
However, the central bank ultimately decided that keeping rates unchanged was the stronger argument.
The minutes are underpinning AUD this morning by suggesting that a tightening bias still exists within the RBA.
Elsewhere, the market mood is likely preventing the ‘Aussie’ from pressing its advantage from the minutes. As an acutely risk-sensitive currency, the mixed level of risk appetite is keeping it wrongfooted.
Pound Australian dollar exchange rate forecast: UK CPI in focus
Looking ahead for the pound, the core catalyst of movement is likely to be the latest UK inflation data for April.
Headline inflation is expected to have cooled to 2.1%, bringing it even closer to the Bank of England’s (BoE) target. If this prints as expected, the pound may slide as it would cement bets on an imminent interest rate cut.
For the Australian dollar, focus is likely to shift towards the latest private sector PMIs, due for release on Thursday.
While the preliminary manufacturing PMI for May is expected to show a return to sector growth, the services reading is expected to show slowing activity. This could lead to volatile trade for the ‘Aussie’ amid mixed economic signals.