GBP/AUD exchange rate sinks on Australian dollar tailwinds
The pound Australian dollar (GBP/AUD) exchange rate continues to trend lower today, as the Australian dollar (AUD) prospers while the pound (GBP) succumbs to risk-off headwinds. Continuing to weigh upon Sterling sentiment is yesterday’s disappointing data from the Confederation of British Industry (CBI).
At the time of writing, GBP/AUD is trading at A$1.9613, having tumbled by more than 0.6% in the past 24 hours.
Australian dollar (AUD) boosted by commodity prospects
The Australian dollar is firming this morning as the People’s Bank of China (PBoC) enacted unexpected cuts to key lending rates.
This move has a knock-on effect for the price of commodities such as coal and copper, as China is a major consumer of Australian exports: demand for construction materials is expected to increase following the bank’s cuts.
Hawkish sentiment surrounding the monetary policy trajectory of the Reserve Bank of Australia (RBA) is also fuelling the currency’s uptrend, countering risk-off headwinds which may otherwise have dampened AUD morale.
The RBA is expected to remain hawkish beyond the start of other central banks’ rate-cutting schedules, given strong inflationary pressures in Australia and a tight labour market. Economists note that next week’s inflation data could present a fork-in-the-road moment for rate-setters.
While a bullish outlook prompts strength in the Australian Dollar, experts warn of negative repercussions should the Reserve Bank of Australia choose to hike interest rates again. Deloitte partner and report co-author Cathryn Lee remarks:
‘Consumer and business confidence remains at rock bottom, household budgets have been decimated by broad cost of living pressures, and insolvencies have surged.
In that environment, Australians and Australian businesses were looking forward to July 1 as the trigger for tax cuts and other relief. To have the RBA Board snatch that relief away just as it arrived would be a mighty blow.’
Pound (GBP) appeal limited by risk-off mood, poor UK data
The pound is subdued today as market sentiment is volatile ahead of key US data. The outcome of the core PCE price index in the States will have repercussions across the currency market given that the country has the world’s largest economy.
Also rendering Sterling vulnerable to headwinds is yesterday’s weak data release from the Confederation of British Industry. Business optimism in the third quarter of 2024 has fallen rather than rising as forecast, while industrial trends orders plummeted unexpectedly in June to –32.
Sudhir Junankar, associate director of economic analysis at the CBI, remarked: ‘Strong competition is taking its toll on manufacturers as more firms expect to cut prices.’
However, the Confederation’s analysis wasn’t all bad.
Junankar added: ‘The good news is that manufacturing demand, although weak, is reviving and output prospects are modestly positive.’
Nevertheless, GBP appears little encouraged by upbeat remarks as traders are also subdued by growing expectations of a dovish pivot from the UK’s central bank. 80% of polled economists now think the Bank of England (BoE) will announce an interest rate cut in its August meeting.
James Smith, developed markets economist at ING, voices the concerns of many, saying: ‘Decent growth for the rest of 2024 relies, in part, on those cuts being delivered, a fact that won’t have been lost on BoE officials.’
GBP/AUD forecast: exchange rate to respond to US data?
The pound Australian dollar exchange rate is likely to trade this afternoon according to the outcome of the US PCE core price index.
While the monthly reading is expected to remain unchanged at 0.1%, the annualised data is forecast to print at 2.5%: 0.1% lower than the previous figure. If the release prints as expected, it could reinforce expectations of dovish action from the Federal Reserve.
Predictions for monetary policy loosening from the Fed generally inspire a risk-on mood, as less restriction monetary policy in the world’s largest economy has trickle-down effects for the currency market as a whole. Thus, pound morale may pick up this afternoon if risk appetite recovers, though continuing strength in the ‘Aussie’ could limit GBP/AUD tailwinds.