GBP/AUD exchange rate rises following AU data release
The pound Australian dollar (GBP/AUD) exchange rate is trending higher today, boosted by weakness in the Antipodean currency. The Australian dollar (AUD) is facing pressure as underlying inflation in Australia missed forecasts for the second quarter of 2024.
At the time of writing, GBP/AUD is trading at A$1.9701, having climbed by almost 0.4% in the past 24 hours.
Australian dollar (AUD) tumbles amid inflation disappointment
The Australian dollar is sinking against its peers today as Australia’s latest trimmed mean core inflation reading printed below forecasts. The measure reads at 0.8% on a quarterly basis, rather than the 0.9% forecast, and 3.9% on the year.
Forex analysts at Brown Brothers Harriman (BBH) remarked in the wake of the release:
‘Softer Australia underlying inflation and poor retail sales activity mean RBA rate hikes are off the table. Cash rate futures went from pricing a small probability of an RBA rate hike by year-end to 70% odds of a 25bps rate cut after today’s data.’
The prospect of a more dovish Reserve Bank of Australia (RBA) subdues ‘Aussie’ morale; moreover, Australian households have curbed spending according to recent retail data, pointing to an economy struggling under restrictive monetary policy conditions.
Retail sales for the month of June exceeded forecasts of 0.2%, printing instead at 0.5%. While the data seems positive at face value, analysts warn that the uptick in sales represents consumers seeking bargains ahead of the end of the financial year; subsequently, spending is expected to plummet.
Ben Dorber, ABS head of retail statistics, confirms:
‘Retailers told us that consumers continued to target sales events and look for the best deals…
Sales volumes fell for the sixth time in the past seven quarters, reflecting that consumers continue to hold back on spending. It also shows that much of the growth in monthly retail turnover reflects higher prices.’
Pound (GBP) weakens as central bank policy divergence expected
The pound (GBP) is trading lower against the majority of its peers today – the Australian dollar excepted – as investors turn bearish ahead of the Federal Reserve’s announcement tonight.
While the Bank of England (BoE) is now widely expected to cut interest rates tomorrow, the Fed are considered likely to keep monetary policy unchanged. Such an outcome would mark policy divergence between the two central banks, painting the BoE in a dovish light.
There was a period within the past month where the Federal Reserve was considered more dovish than the UK’s central bank: the fact that these expectations have been subverted appears to be weighing upon Sterling morale.
Yet the outcome of tomorrow’s BoE decision is still not set in stone. While markets are pricing in a 25bps interest rate cut, there remain sceptics; including former chancellor, Lord Hammond.
Hammond has raised concerns over inflated wage growth and service-sector inflation. He told the media:
‘The Bank of England will be worrying that these wage increases are going to feed back into a spiral that will start to push prices back up again. So, I think there is quite likely to be a majority on the MPC for waiting a little bit longer.’
GBP/AUD forecast: exchange rate to trade upon Fed decision?
The tone of the Federal Reserve’s interest rate announcement tonight may well influence the pound Australian dollar exchange rate, as the performance of the world’s largest economy has implications across global currency markets.
If the central bank strike a dovish tone, signalling a likely interest rate cut in September, the US dollar (USD) may weaken, lending a boost to its risk-off peers. ‘Aussie’ tailwinds could subsequently drive GBP/AUD lower, erasing this morning’s gains.
Elsewhere, better-than-expected manufacturing performance in China may inspire an uptick in Australian dollar exchange rates. While the country’s July PMI showed ongoing contraction in the manufacturing sector, the release printed higher than forecasts at 49.4.