Pound Australian dollar (GBP/AUD) exchange rate slips as RBA decision supports AUD
The pound Australian dollar (GBP/AUD) exchange rate is on the back foot today as the Reserve Bank of Australia’s (RBA) interest rate decision overnight supports the ‘Aussie’.
At the time of writing, the GBP/AUD exchange rate is trading at AU$1.9604, down over 0.3% on the day.
Australian dollar (AUD) rises as RBA leaves rates unchanged
The Australian dollar (AUD) is garnering support today in the wake of the RBA’s latest interest rate decision.
The Australian central bank left its monetary policy untouched, as expected, with policymakers not even considering cutting interest rates due to above-target underlying inflation.
In the RBA’s accompanying statement, the bank highlighted the upside risks to inflation and indicated that rate cuts are not currently on the table:
‘While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high… Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.’
This language was seen as hawkish, pouring cold water over speculation that the bank may soon consider cutting rates.
As a result, the Australian dollar is strengthening today.
Pound (GBP) uncertain despite positive PMI
Meanwhile, the pound (GBP) is mixed today, despite an upward revision to the UK’s final services PMI for October.
British service sector activity slowed less than previously thought last month, with the PMI score dropping from 52.4 to 52, rather than 51.8.
However, this has only provided GBP with a modest upside, as investors await more impactful events later in the week.
As a result, the market mood is having an effect on GBP movement. While the increasingly risk-sensitive pound is rising against some of its safer peers amid a cheery mood, it is losing ground against the riskier ‘Aussie’.
GBP/AUD exchange rate forecast: BoE decision to boost the pound?
Looking ahead, the US presidential election could drive volatility in the currency market over the coming days. A victory for Donald Trump would likely boost the US dollar (USD) and drive risk aversion, which in turn could weigh on the ‘Aussie’. We may see market risk appetite shift as the results start to trickle in.
Meanwhile, GBP investors may be hesitant ahead of the Bank of England (BoE) interest rate decision on Thursday. A 25bps rate cut is priced in, so the focus is on the bank’s forward guidance.
If the BoE suggests a December rate cut is on the table, Sterling could slide. On the other hand, if the bank signals that higher inflation expectations may force it to take a slower approach to unwinding monetary policy then the pound may strengthen.
With some uncertainty around the BoE’s future pace of cuts, GBP investors may be reluctant to bet too aggressively on the pound ahead of the decision.