Pound Australian Dollar Exchange Rate News: GBP/AUD Tumbles after RBA Raises Interest Rates for First Time in Over a Decade

May 3, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Tumbles after RBA Raises Interest Rates for First Time in Over a Decade

GBP/AUD Plunges as RBA Delivers First Rate Hike in Over a Decade

The Pound Australian Dollar (GBP/AUD) exchange rate is falling today after the Reserve Bank of Australia (RBA) raised interest rates by 25-basis points for the first time in ten years.

At the time of writing, the GBP/AUD exchange rate is trading at approximately AU$1.7646, roughly down 0.4% from today’s opening levels.

Australian Dollar (AUD) Surges after RBA Delivers Surprisingly Large Interest Rate Hike

The Australian Dollar (AUD) is climbing against the Pound (GBP) today after RBA hiked interest rates for the first time in over a decade.

The RBA overshot market forecasts of 0.25% and hiked interest rates to 0.35%, up from the 0.1% cash rate the bank had maintained throughout the pandemic since November 2020.

The interest rate hike came after inflation in Australia surged to 3.7% in the first quarter, as well as low levels of consumer confidence.

RBA Governor Philip Lowe said:

‘The board judged that now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic.

‘The economy has proven to be resilient, and inflation has picked up more quickly, and to a higher level, than was expected. There is also evidence that wages growth is picking up.

‘Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.’

According to David Plank, ANZ’s head of Australian economics, ‘the move is at the hawkish end of the spectrum’ and ‘reflects the RBA’s elevated inflation forecasts’.

In light of the RBA’s hawkish forward guidance AUD investors are preparing for the central bank to deliver further interest rate hikes throughout the year, bolstering demand for the ‘Aussie’.

Pound (GBP) Drops as ‘Everything Cost More’

The Pound (GBP) is falling against the Australian Dollar (AUD) as a result of the ‘Aussie’s strength today.

Meanwhile, the UK’s final manufacturing PMI for April printed at 55.8, above the previous reading of 55.2 and market expectations of 55.3.

The figures confirm a slight expansion in UK factory activity. This is following the one-year-low PMI in March that was driven by the Ukraine crisis.

Despite this, many manufacturers remain cautious in their outlook. This comes as over 80% of companies reported a rise in their own purchase prices. As a result, over 60% of companies raised their prices last month.

This has further underpinned concerns over the UK’s cost of living crisis.

The report stated:

‘Several companies simply noted that “everything” cost more. Supplier price increases, market forces, the war in Ukraine, general inflationary pressure and China lockdowns also contributed to higher purchase prices.’

In addition, many GBP investors are looking towards the Bank of England’s (BoE) interest rate decision.

On Thursday, BoE is expected to raise interest rates to 1% from 0.75%. This is largely priced-in however, placing the focus primarily on the bank’s forward guidance.

At present, BoE is predicted to strike a cautious tone, which is likely to place pressure on GBP exchange rates.

GBP/AUD Exchange Rate Forecast: BoE Interest Rate Decision in Spotlight

Looking ahead, the Pound Australian Dollar exchange rate will no doubt be influenced by the BoE’s interest rate decision and forward guidance.

Furthermore, the Pound may be influenced by the UK’s political environment. The UK’s local elections are being held this week.

Should the Conservative Party lose a large number of seats in the upcoming local elections it could place more pressure on Boris Johnson, weakening Sterling in the process.

On the other hand, the ‘Aussie’ may be supported by the Australian trade balance for March. The figures are expected to increase from AU$7.457bn to AU$8.5bn.

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TAGS: Pound Australian Dollar Forecasts