Pound Australian Dollar (GBP/AUD) Exchange Rate Rallies as Investors Buy the Dip

March 9, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Rallies as Investors Buy the Dip

Pound Australian Dollar (GBP/AUD) Exchange Rate Narrows as Investors Buy the Dip

The Pound Australian Dollar (GBP/AUD) exchange rate narrowed on Thursday, as investors moved to invest in more risk sensitive currencies.

At the time of writing, GBP/AUD traded at around AU$1.7988, showing little movement from Thursday’s opening rates.

Pound (GBP) Firms amid Dip-Buying

The Pound (GBP) gained ground during Thursday’s session, as investors began to look to other opportunities.

With little in the way of impactful data releases, external factors appeared to be the core driver of movement for Sterling’s gains during the session.

For instance, the latest US jobless claims printed above forecasts, pointing to signs that the Federal Reserve’s aggressive tightening cycle could be beginning to take effect. Because of this, investors engaged in profit taking, prompting weakness in the US Dollar.

From here, dip buying for Sterling could have occurred, leading to the strengthening seen during Thursday’s session.

However, adjusted expectations for Bank of England (BoE) interest rate hikes may have capped the Pound’s gains.

On Wednesday, Swati Dhingra stated: ‘In my view, a prudent strategy would hold policy steady amidst growing signs external price pressures are easing, and be prepared to respond to developments in price evolution.’

On the back of this, markets have fully priced in a 25bps rate hike from the Bank of England, which may have kept Sterling somewhat grounded.

Australian Dollar (AUD) Strengthens as Coal Prices Rally

The Australian Dollar (AUD) strengthened during Thursday’s session, as the ‘Aussie’s close ties to commodities appeared to grant it an advantage above other currencies.

At the time of writing, Coal traded at around US$182, a rise of roughly 1.1% from Thursday’s opening rates. As coal is one of Australia’s main exports, the stark jump in price likely assisted in bringing support to the ‘Aussie’.

However, these gains may have been capped by a tepid market mood. While investors appeared to be favouring riskier assets, the predominant mood was cautious. Because of this, the risk sensitive ‘Aussie’ may have seen some tailwinds, but it was likely capped by the cautious mood.

Elsewhere, China’s latest set of inflation data may have added a headwind for the Australian Dollar. As a Chinese proxy currency, the ‘Aussie’ is susceptible to Chinese releases. With CPI for February printing at 1%, the slowest rate of increase in a year, the signs of a sluggish economic recovery for the superpower may have weighed on the ‘Aussie’.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: UK GDP to Boost Pound?

Looking ahead for the Pound, Friday’s GDP data is likely to be the core catalyst of movement. January’s monthly data is forecast to show growth of 0.1%, which could bring strength to Sterling by easing recession anxieties.

Furthermore, January’s balance of trade data for the UK is also scheduled to print. At the time of writing, economists forecast the UK’s trade deficit to narrow from £-19.371bn to £-17.75bn. If this prints as forecast, GBP could strengthen further as it shows improving trade between the UK and other markets.

However, ever-present domestic headwinds may cap potential gains for the Pound. The cost of living crisis remains a pressure on UK businesses and households, and further headlines could mute any gains from these releases.

For the Australian Dollar, a thin data calendar means that external factors are likely to be the key driver of movement.

For instance, the US is set to receive highly important jobs data on Friday. If the data continues to show a tight labour market, it may add more impetus for the Federal Reserve to continue with their aggressive tightening schedule, which may damage the US economy.

If that occurs, the global economy may suffer in tandem. Because of this, the market mood could sour, which would weigh heavily on the risk sensitive ‘Aussie’.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Australian Dollar Forecasts