Pound Australian Dollar (GBP/AUD) Exchange Rate Surges despite Sterling Headwinds
The Pound Australian Dollar (GBP/AUD) exchange rate has peaked at fresh 3-year high today, in spite of several Pound (GBP) headwinds – including lesser-than-expected sales growth and rising unemployment. Meanwhile, Australian Dollar (AUD) losses are capped by a risk-on mood.
At the time of writing, GBP/AUD is trading at A$1.9377, having firmed by over 0.7% in the past 24 hours.
Pound (GBP) Firms on Wage Growth, Rate Hike Bets
The Pound is climbing against the majority of its peers today despite mixed economic stimuli. Capping gains for the currency are rising UK unemployment and a weaker-than-forecast sales report from the British Retail Consortium (BRC).
Providing support, however, is a greater-than-expected increase in average earnings, helping consumers to weather the cost-of-living crisis. A key indicator of inflationary pressures, the data is also strengthening bets for a 50bps interest rate increase at the Bank of England (BoE)’s next policy meeting.
The International Monetary Fund (IMF) commented of the situation:
‘Should inflationary pressures show signs of further persistence, the policy rate may have to be raised further and would need to remain higher for longer to durably lower inflation and keep inflation expectations anchored.’
Nevertheless, a continuation of aggressive monetary policy tightening from the BoE is not without its dangers. As higher interest rates put pressure on businesses and would-be homeowners, the fear of a UK-wide recession lingers.
Australian Dollar (AUD) Wavers as Overnight Data Impresses
The Australian Dollar firmed overnight against several of its peers, though weakened against the Pound amid Sterling tailwinds.
Supporting AUD to some extent was a positive consumer confidence reading and a better-than-expected business confidence report. The former printed as expected at 2.7%, reflecting consumers’ relief over easing inflation and slowing interest rate hikes.
Business confidence, meanwhile, beat forecasts. Business conditions steadied and the employment index stayed at 5, while profits rose two points to 9. Commenting on the data, NAB chief economist Alan Oster remarked with cautious optimism:
‘We continue to see warning signs in the survey about the outlook for growth but as of June firms were yet to see a real deterioration.’
A risk-on market mood may be further assisting the ‘Aussie’ today, although gains may still be tempered by yesterday’s disappointing inflation release from China. Inflation fell on a monthly basis in the world’s second-largest economy, reflecting a stalling post-pandemic recovery.
GBP/AUD Exchange Rate Forecast: Lowe Speech to Direct Movement?
The Pound Australian Dollar exchange rate could trade on comments from the Reserve Bank of Australia (RBA)’s Governor Philip Lowe tomorrow. Given easing inflationary pressures in the country, Lowe may strike a relatively dovish tone, potentially inspiring AUD headwinds.
On the other hand, the bank acknowledged at its July meeting that some further monetary tightening may be required to ensure inflation returns to its target range in a reasonable timeframe. If Lowe reiterates this position, the ‘Aussie’ may enjoy tailwinds, potentially depressing GBP/AUD.
Meanwhile, a lack of significant UK data leaves Sterling to trade on interest rate speculation and recession fears. The Pound may consequently experience some volatility during tomorrow’s session.