Pound Australian Dollar Exchange Rate Dips as RBA Keeps Rates Unchanged

March 1, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate Dips as RBA Keeps Rates Unchanged

Pound Australian Dollar (GBP/AUD) Exchange Rate Falls after RBA Interest Rate Decision

The pound Australian dollar exchange rate dropped overnight and continued to trend downward today, hitting its lowest point since December 2021. The Reserve Bank of Australia’s (RBA) decision to leave interest rates unchanged likely caused the dip. Increased speculation of a rate hike from the RBA later in 2022 bolstered the Australian dollar (AUD) against its rivals.

At time of writing the GBP/AUD exchange rate is at around $1.8456, which is down roughly -0.2% from this morning’s opening figures.

Australian Dollar (AUD) Boosted by Speculation of Rate Hike in 2022

The Australian dollar climbed against its rivals following the RBA’s interest rate decision on Tuesday. The central bank left interest rates unchanged at 0.1% despite increasing inflationary pressures. The RBA also highlighted the market uncertainty generated by the Russian invasion of Ukraine as a key factor.

In a statement released after the meeting, RBA governor Philip Lowe said:

‘The war in Ukraine is a major new source of uncertainty. Inflation in parts of the world has increased sharply due to large increases in energy prices and disruptions to supply chains at a time of strong demand.’

Lowe also highlighted that rising inflation could see consumer prices ‘spike higher’ as energy and fuel prices soar. The RBA is expected to maintain its dovish stance until inflation hits the central bank’s target range of 2-3%.

Analysts feel the statement is likely to increase speculation of a rate hike later in 2022 from the RBA, as well as providing evidence for other central banks to delay tightening of their monetary policy.

Signs of Australia’s post-pandemic economic recovery also likely helped the ‘aussie’ to make gains. Data from the Australian Bureau of Statistics indicated that a narrowing of the country’s trade surplus to $12.7B only shaved 0.2% off the country’s fourth quarter GDP growth.

Pound (GBP) Trends Lower as Russia-Ukraine Conflict Intensifies

The pound (GBP) ticked downward against many of its rivals today amid market uncertainty. Further escalation in the Russian invasion of Ukraine has likely limited gains for sterling. Investors are likely also waiting to see the impact further sanctions on Russia have in the markets.

As a large convoy of Russian armoured vehicles approaches the city of Kyiv, the Ukrainian president Volodymyr Zelensky has stated that Russia is deliberately shelling civilian areas in what amounts to ‘war crime’. Despite diplomatic talks between the two countries on Monday, analysts believe that the possibility of a ceasefire is unlikely.

Losses for GBP may be limited after figures indicated that production growth in the UK manufacturing sector has hit a seven-month high. February’s PMI rose to 58 from 57.3 the previous month.

Whilst the figures showed healthy activity in the sector, analysts were quick to point out that supply chain disruption and high commodity prices due to the Ukraine-Russia conflict could place pressure on the sector in the coming months.

GBP/AUD Exchange Rate Forecast: Will Australian Economy Continue to Recover?

Looking to the week ahead for the UK, February PMI figures for the country’s services sector could boost GBP should they rise as forecast on Thursday. A strong post-Omicron recovery in the sector is expected as consumer demand returns despite soaring inflation.

A number of speeches from Bank of England (BoE) officials could also prompt movement in sterling this week. The central bank’s outlook has been more dovish of late which could cause the pound to dip.

For the Australian dollar, a forecast rise in GDP growth for the fourth quarter of 2021 may push AUD higher on Wednesday. Additionally the release of the RBA’s chart pack could bolster the Australian dollar further should investors pick up on any hawkish forward guidance.

Also on Wednesday are the final February PMI figures for the Australian services sector. The sector forecast to show a strong recovery following the reopening of the country’s borders which could boost AUD.

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