Pound Australian Dollar Exchange Rate News: GBP/AUD Nosedives as Ukraine Crisis Extends Commodity Rally

March 7, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Nosedives as Ukraine Crisis Extends Commodity Rally

GBP/AUD Nosedives as Commodity Price Rally Intensifies

The Pound Australian Dollar (GBP/AUD) exchange rate is falling during today’s session as escalating geopolitical tensions drive commodity prices even higher.

At the time of writing, the GBP/AUD exchange rate is trading at approximately AU$1.7768, roughly down by 1.38% since this week’s trade began.

Australian Dollar (AUD) Soars as Ukraine Crisis Drives Commodity Prices Even Higher

The Australian Dollar (AUD) is climbing against the Pound (GBP) again today as the Russia-Ukraine war pushes commodity prices higher.

Reports that the US and EU are considering a ban on Russian oil imports has sparked considerable market volatility this morning and is underpinning a broadly commodity price rally.

Certain commodities, including Australia’s top exports, coal, metal and gas, are benefitting from high prices, which is supporting the appeal of the ‘Aussie’.

Richard Franulovich, head of FX strategy at Westpac, said:

‘With met and thermal coal, LNG/natural gas and aluminium all at record highs, copper closing above $10,500 for the second time ever plus iron ore up 14% last week, the commodity complex remains a huge source of support for the [Australian Dollar].’

In addition, investors are pricing in for an earlier-than-expected rate hike from the Reserve Bank of Australia (RBA).

Previously expected to hike rates in August, Diana Mousina, a senior economist at AMP Capital, has warned high inflation alongside high energy prices may cause RBA to increase interest rates faster than originally thought.

Mousina said:

‘We now expect the first rate hike in June, previously August, as March quarter inflation and wages data is likely to be much higher than the RBA anticipates.

‘After June, we expect two more rate hikes in August and November, leaving the cash rate at 0.75% by the end of the year.’

Later this evening, RBA assistant governor, Michele Bullock, is scheduled to deliver a speech.

Should Bullock strike a broadly hawkish tone, it may further support the possibility for a future rate hike and bolster demand for the ‘Aussie’.

Moreover, as a proxy to the Chinese economy, AUD exchange rates are benefitting from stronger-than-expected Chinese trade data published overnight.

Pound (GBP) Plunges as Russia-Ukraine War Escalates

The Pound (GBP) is plummeting against the Australian Dollar (AUD) as geopolitical uncertainty unsettles Sterling’s position.

As Vladimir Putin continues to drive Russian troops further into Ukraine, the UK and its western allies are preparing to impose more sanctions, some of which could be economically damaging to the UK.

UK Prime Minister, Boris Johnson, said:

‘It is absolutely vital that Vladimir Putin understands that this hideous, barbarous assault cannot succeed and that he will fail, and believe me, I think he will. Putin must fail.’

Anything which could stoke inflationary pressures in the UK are likely to be a key concern for GBP investors amidst fears it will exacerbate the cost-of-living crisis.

GBP/AUD Exchange Rate Forecast: Will the Ukraine Crisis Boost AUD?

Looking ahead, the Ukraine crisis will remain the key channel of movement in the Pound Australian Dollar exchange rate for the foreseeable future.

Should Russia's attack on Ukraine continue to intensify we could see commodity prices trend even higher, offering the ‘Aussie’ further support.

Moreover, RBA governor, Philip Lowe, is scheduled to deliver a speech tomorrow. If Lowe’s comments are largely hawkish in tone, it may bolster AUD’s appeal.

On the other hand, the Pound is likely to be susceptible to market movements and geopolitical developments during the first half of this week’s session due to an absence of notable data.

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