GBP/AUD exchange rate erases part of losses
The pound Australian dollar (GBP/AUD) exchange rate is firming today following yesterday’s slump. Buoying the pound (GBP) may be an unexpected increase in mortgage approvals, as well as confidence that the Bank of England (BoE) will be slow to loosen restrictive monetary policy.
At the time of writing, GBP/AUD is trading at A$1.9370, having trended modestly higher in the past 24 hours.
Pound (GBP) enacts tentative rebound as US data awaited
The pound is making modest gains today following yesterday’s slump against the Australian dollar (AUD). Propelling Sterling higher may be a revival in US dollar (USD) weakness as traders await this afternoon’s core PCE price index.
The US release is a major event, as it is general considered to be the Federal Reserve’s (Fed) preferred gauge of inflation. The data is likely to have knock-on effects across the currency market, as higher-than-expected US inflation could skew central bank forecasts.
Also boosting GBP could be this morning’s mortgage statistics, which revealed that approvals have gone up, rather than down as forecast. Paul Dales, chief UK economist at Capital Economics, remarks:
‘The rise in approvals is consistent with house price inflation of around 2.0% in six months’ time,’; in annual terms, house prices were 2.4% higher than in August last year, marking the fastest increase since December 2022.
Underlying pound strength is also the firm conviction that the Bank of England will be slow to ease off restrictive monetary policy measures, compared with other major central banks. The BoE is expected to cut interest rates by 40 bps through the remainder of this year, while the European Central Bank (ECB) is projected to cut by 65 bps, and the Fed by 100 bps.
Australian dollar weakens on disappointing retail data
The Australian dollar is softening against its peers today as July’s retail data disappointed. Instead of printing at 0.3% as forecast, the reading came in at 0%, as clothing, footwear & personal accessory retailing fell for the first time in three months.
Prior to the release, the ‘Aussie’ was able to maintain a stable upward trajectory, buoyed by commodity prices. The value of iron ore, the country’s biggest export, rebounded last week following months of depreciation amid reduced demand in China.
Moreover, the Reserve Bank of Australia’s (RBA) hawkish monetary policy stance caps losses following July’s higher-than-expected consumer price inflation. Recent RBA Minutes also showed that board members agreed that a rate cut would be unlikely soon:
‘Members assessed that the risk of inflation not returning to target within a reasonable timeframe had increased… Based on what they knew at the time of the meeting, members agreed that monetary policy would need to be tighter than [the] implied path in order to bring inflation sustainably back to target.’
Yet AUD faces additional headwinds as China’s factory PMI is expected to come in below 50 over the weekend, tipping into contraction territory. As a proxy for China’s economic prospects, the Australian Dollar is likely to weaken if the data prints as expected.
GBP/AUD exchange rate forecast: US data to determine trade dynamics?
The pound Australian dollar is likely to trade this afternoon upon the results of the US core PCE inflation data.
Given the data’s significance in determining the Federal Reserve’s monetary policy trajectory, the release is likely to prompt interest rate speculation, inspiring a comparison of central bank policy. If inflation climbs unexpectedly, investors may adjust their expectations for a more hawkish Fed, leading to repositioning in the markets.
Into next week, Chinese PMI dynamics could influence the ‘Aussie’ – if the data disappoints, GBP/AUD may climb.