Pound Australian Dollar (GBP/AUD) Exchange Rate Weakens amid Hawkish RBA Rhetoric

May 5, 2023 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Weakens amid Hawkish RBA Rhetoric

Pound Australian Dollar (GBP/AUD) Exchange Rate Weakens amid Hawkish RBA Rhetoric

The Pound Australian Dollar (GBP/AUD) exchange rate weakened on Friday, as a hawkish statement from the Reserve Bank of Australia (RBA) prompted elevated rate hike bets.

At the time of writing, GBP/AUD traded at around AU$1.8742, a fall of around 0.3% from Friday’s opening rates.

Australian Dollar (AUD) Strengthens amid Hawkish RBA Statement

The Australian Dollar (AUD) strengthened during Friday’s European session. The risk sensitive ‘Aussie’ may have benefitted from a somewhat upbeat market mood, alongside hawkish rhetoric from the Reserve Bank of Australia (RBA).

The RBA released their latest monetary policy statement early on Friday morning, and signalled that persistently elevated inflation was a firm concern amongst policymakers. With energy costs and private rent remaining high, the RBA believed they had more work to do in terms of combating inflation.

The RBA’s statement read: ‘The longer inflation remains above target, the greater the risk that inflation expectations rise and price- and wage-setting behaviour might adjust accordingly. The end result would be even higher interest rates and a larger rise in unemployment would be required to bring inflation back to target.’

However, as the ‘Aussie’ acts as a Chinese proxy currency, the underwhelming Caixin service sector PMI release may have capped these potential gains. April’s index printed at 56.4, below forecasts which expected an increase to 58.

Despite being a fourth consecutive month of growth, the lag in domestic demand weighed on China’s service sector.

Pound (GBP) Cushioned by BoE Rate Hike Bets

The Pound (GBP) was cushioned on Friday, despite a lack of impactful macroeconomic data releases. The cheery market mood and persistent bets on further tightening from the Bank of England (BoE) were likely causes.

The central bank is widely expected to deliver a 25bps interest rate hike at their May meeting next week, as inflation remains far above their 2% target rate.

Further bets have been prompted by signs of resilience in the UK economy. If these signs of recovery and improvement continue, the BoE may have room to tighten further than expected earlier in the year, leaving room for an additional rate hike or more.

As an increasingly risk sensitive currency, the Pound may have also enjoyed support from the upbeat market mood. However, as the Australian Dollar is significantly more open to risk, this mood served to benefit the ‘Aussie’ on a deeper level.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: Business Confidence Increase to Boost AUD?

Looking ahead for the Australian Dollar (AUD), Monday sees the release of the NAB business confidence index. April’s release is forecast to increase from -1 to 1, reflecting an uptick in confidence across Australian businesses, and a clear improvement from the previous month’s sentiment.

On Tuesday, the Westpac consumer confidence index is due to print, reflecting consumer attitudes for May. A fall is expected from 85.8 to 82.1, which could weigh on the Australian Dollar by indicating a reduction in consumer optimism. With consumer spending previously seen to be a sticking point for economists, this dip may prove sombre reading.

Then, the Chinese balance of trade data could provide some direction for the ‘Aussie’. With China’s trade surplus forecast to decrease from $88.19bn to $74.3bn, this may dent AUD rates due to it being a Chinese proxy currency.

Furthermore, with export prices forecast to have fallen in April, this may weigh on the ‘Aussie’ by indicating a slowdown in China’s economic recovery.

Meanwhile, the Pound is likely to see little activity on Monday as UK markets are closed for a bank holiday. As such, any movements then are likely to be driven by market sentiment.

Early on Tuesday, the British Retail Consortium (BRC) are due to publish their latest retail sales monitor. April’s sales have seen signs of increasing per previous data releases. If this reinforces previous upbeat data, GBP could enjoy support amid signs of improvement in the UK’s retail sector.

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