Pound Australian Dollar Exchange Rate Nosedives amid Commodity Rally

February 22, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate Nosedives amid Commodity Rally

Pound Australian Dollar (GBP/AUD) Exchange Rate Tumbles amid RBA Rate Hike Speculation

The pound Australian dollar (GBP/AUD) exchange rate plummeted today. The Australian dollar (AUD) climbed amid expectations of a rate hike from the Reserve Bank of Australia (RBA). An uptick in commodity prices amid the Ukraine-Russia crisis has also buoyed AUD.

At time of writing the GBP/AUD exchange rate is at around $1.8776, down roughly -0.8% from this morning’s opening figures.

Australian Dollar (AUD) Climbs amid Surge in Iron Ore Prices

The Australian dollar soared against the majority of its rivals today despite a risk-off market mood. The ‘Aussie’ was likely boosted by ongoing expectations of a rate hike from the RBA and climbing iron ore prices.

In a speech on Tuesday, RBA assistant governor Christopher Kent stated that a rate hike from the central bank later this year was plausible should the country’s economy continue to improve.

The RBA has been dovish in its future outlook on monetary policy, making it clear that they would be waiting for wages and inflation to reach a higher point before raising rates. The markets meanwhile are currently pricing in a rate hike as soon as July with a total of four hikes predicted in 2022.

AUD has likely continued to be pushed upward by rising iron ore prices today. Commodity prices have been pushed higher across the board amid the Ukraine-Russia crisis. The price of iron ore is expected to continue to climb amongst strong Chinese demand and a lack of additional supply growth.

US-based Fitch Solutions Country Risk and Industry Research (FSCRIR) said:

‘On the supply side, we do not expect any significant increase in iron ore supply from major producers who will place an emphasis on value over volume in 2022.’

Pound (GBP) Drops amid Risk-Off Market Mood

The pound (GBP) has tumbled against many of its competitors amid a risk-off market mood. The crisis at the Ukraine-Russia border has seen investors flock to safe-haven currencies.

Significant losses for the currency may have been limited by expectations of a rate hike from the Bank of England (BoE) however.

Calls for the BoE to take action are likely to increase following the Confederation of British Industry’s (CBI) latest manufacturing survey. The figures showed that more British manufacturers are planning to raise prices in the next three months since 1976.

77% of firms surveyed said they would be raising prices, up from 66% in January. Inflationary pressures have continued to impact raw material and staffing costs.

A speech from BoE deputy governor Dave Ramsden could further help limit losses for the pound, and further increase speculation of future rate hikes.
Ramsden stated that the central bank would need to raise rates more in coming months, although highlighted long-term uncertainty owing to the Ukraine-Russia crisis.

Speaking at the National Farmers’ Union annual conference, Ramsden said:

‘The word 'modest' is significant here though - I do not envisage Bank Rate rising to anything like its pre-2007 level of 5% or above, let alone to the kind of levels we used to see before the MPC was formed in 1997.’

Investors have priced in a rate hike from the BoE at their 17 March meeting, whilst the markets expect the central bank to bring interest rates close to 2% by the end of 2022. Inflation in the UK leaped to 5.5% in January, its highest point since March 1992.

GBP/AUD Exchange Rate Forecast: Will Bailey Hint at Future BoE Policy?

Looking to the week ahead, Sterling could be pulled down further should distribute trades figures on Thursday print as forecast. The figures could harm confidence in the UK retail sector’s recovery.

A speech from BoE governor Andrew Bailey on Thursday could bolster the pound should investors pick up on hawkish hints of future rate hikes.

For the Australian dollar, Wednesday’s forecast uptick to wage prices could prompt speculative bets on the currency. Wage growth has been one of the factors for hiking rates previously given by the RBA.

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TAGS: Pound Australian Dollar Forecasts