Pound Australian Dollar (GBP/AUD) Exchange Rate Falls amid Upbeat Market Mood

March 17, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Falls amid Upbeat Market Mood

Pound Australian Dollar (GBP/AUD) Exchange Rate Pulled Lower by Risk-On Mood

The Pound Australian Dollar (GBP/AUD) exchange rate fell on Friday. A risk-on market mood pulled the pairing lower.

Bets that the Bank of England may further slow its pace of policy tightening also weighed on GBP/AUD.

At time of writing the GBP/AUD exchange rate was at around AU$1.8113, which was down 0.3% from that morning’s opening figures.

Pound (GBP) Firms as Fears of Banking Sector Collapse Recede

The Pound (GBP) edged higher on Friday despite a lack of data releases. A return of risk appetite bolstered Sterling against is safer peers. The upbeat market mood saw GBP fall against the Australian Dollar (AUD), however.

GBP found support as fears of a collapse in the global banking sector eased. US First Republic Bank received $30bn in support from a group of larger US banks on Thursday.

Expectations of a pause in policy tightening from the Bank of England (BoE) capped any gains for the Pound on Friday, however. The latest public inflation expectation from the BoE saw expectations drop from 4.8% inflation to 3.9%.

Stuart Cole, head macro economist at Equiti Capital, said:

‘The risk of a wages/price spiral has been a key factor behind the rapid rises seen in interest rates to date and any signs that this pressure may potentially be easing may be enough to persuade the BoE to slow down the pace of tightening going forward.’

Australian Dollar (AUD) Bolstered by Upbeat Market Mood

A return of global risk appetite saw the risk-sensitive Australian Dollar (AUD) climb on Friday. The upbeat market mood came after financial support was announced for the global banking sector.

The ‘Aussie’ also found support from news of further economic stimulus measures on China. The People’s Bank of China (PBOC) announced on Friday that they would be cutting the reserve requirement ratio for all banks.

The move means that banks in China will have to hold less cash in reserve, enabling greater liquidity and supporting the country’s economic recovery.

AUD’s gains were capped by continued bets on a rate hike pause from the Reserve Bank of Australia (RBA). Five major global banks are now predicting a pause in policy tightening from the RBA at their next meeting.

Westpac chief economist Bill Evans said:

‘Even if the markets settle by the time of the RBA’s April board meeting, there will be sufficient uncertainty for a prudent board that was already clearly open to a pause to take that option.’

GBP/AUD Exchange Rate Forecast: Will BoE Signal Rate Hike Pause?

Looking to the week ahead for the Pound, the latest inflation data on Wednesday could dent confidence in Sterling if it prints as forecast. February’s rate of inflation is set to ease to 9.9%. Evidence of cooling inflation could pull GBP lower ahead of the BoE’s interest rate decision.

The BoE’s meeting on Thursday could prompt movement in the Pound. The forecast 25bps interest rate hike has largely been priced in by markets. Any signals of a suspected pause in policy tightening could pull Sterling lower.

A range of forecast positive data releases for the UK’s private sectors on Friday could have a mixed effect on GBP. February’s retail sales are set to rebound for a second consecutive month which could boost Sterling.

On the other hand, PMIs for the UK’s private sectors could dent confidence in the currency if they print as forecast. The UK’s manufacturing sector is set to remain in negative territory, whereas the services sector is forecast to have cooled in March.

For the Australian Dollar, the latest RBA meeting minutes on Tuesday could weigh on AUD if they reaffirm the central bank’s dovish stance.

On Thursday, the latest PMIs for Australia’s private sectors could lend support to the ‘Aussie’ if they print as expected. March’s PMIs are expected to tick lower but remain in positive territory.

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