Pound Australian Dollar Exchange Rate Drops as Risk Appetite Returns

February 16, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate Drops as Risk Appetite Returns

Pound Australian Dollar (GBP/AUD) Exchange Rate Dips amid Risk-On Trading

The Pound Australian Dollar (GBP/AUD) fell overnight and has remained rangebound since the opening of the European session. The Australian Dollar (AUD) has remained buoyed by a return of risk appetite to the markets, whilst losses for the Pound (GBP) were likely limited by a further rise to inflation and expectations

At time of writing the GBP/AUD exchange rate is at around $1.8901, which is roughly -0.2% down from this morning’s opening figures.

Australian (AUD) Bolstered by Return of Risk-On Appetite

The Australian Dollar (AUD) has been boosted against its competitors today by a resurgent risk-on market mood. The gradual withdrawal of Russian troops from the Ukraine border has led investors to look to riskier currencies.

Hints of a potential rate hike in 2022 by the RBA may have also helped the ‘Aussie’ to climb today. RBA Governor Philip Lowe stated last week that an interest rate hike in 2022 was ‘plausible’ as global inflationary pressures continue to build.

RBA minutes released on Tuesday indicated a cautious approach to rate hikes from board members however. Financial service provider Westpac stated that, should wage growth continue to lag behind inflation, that a rate hike at the RBA’s 2 August meeting was likely. Markets have also fully priced in a June rate hike.

AUD’s climb may also have been aided by softer than forecast Chinese inflation data on Wednesday. Analysts are hoping that the People’s Bank of China (PBOC) will continue to fuel the markets with its financial stimulus package.

The Australian Dollar’s gains may be limited by a sharp drop in iron ore prices however. The Chinese government has sought to reign in rampant investor speculation ahead of suspected stimulus measures.

Pound (GBP) Subdued as Inflation Soars to Highest Point since March 1992

The Pound (GBP) has ticked upward against safe-haven currencies today but seen losses elsewhere amid a risk-on market mood. Significant losses for Sterling have likely been underpinned by a further rise to inflation in January however.

Inflation in January rose to 5.5%, its highest point since March 1992, and was largely fuelled by soaring energy prices. Retail prices inflation also rose in January to 7.1% which represents its highest point since March 1991.

The rise comes amid expectations that the Bank of England (BoE) is set to raise interest rates for a third consecutive time. Experts are predicting that the central bank will look past weak growth in order to curb the soaring rate of inflation.

Ed Monk, associate director at Fidelity International, said:

‘The pace of price rises has put the Bank of England on a much more hawkish footing and a third month in a row of interest rates rises now looks likely in March.
That will, of course, squeeze borrowers even more and will add headwinds for the UK economy which has only recently managed to regain the ground lost to the pandemic.’

The Pound could see further Brexit-related headwinds as negotiations over the Northern Ireland Protocol continue to rumble on. A report from the Commons European Scrutiny Committee released on Tuesday indicated that NI could face high regulatory costs from further EU border checks.
This in turn may add further fuel to arguments from parties such as the DUP who have recently pulled ministers from the Stormont government in protest over the protocol.

GBP/AUD Exchange Rate Forecast: Will UK Retail Sector Recover as Predicted?

Looking to the week ahead for Sterling, Friday’s release of January’s retail sales figures could help boost the Pound should figures print a rise as forecast. The sector is expected to show a strong recovery following the Omicron wave.

For the Australian Dollar, Thursday’s employment data could boost the currency should figures indicate a tightening of the country’s labour market as predicted. The unemployment rate for January is forecast to remain unchanged, whilst employment change figures are expected to fall.

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