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Pound Australian Dollar Exchange Rate News: GBP/AUD Fluctuates as RBA Hikes Rates

June 7, 2022 - Written by John Cameron

Australian Dollar (AUD) Buoyant as RBA Delivers Bigger-than-Expected Rate Hike

The Australian Dollar (AUD) strengthened overnight after the Reserve Bank of Australia (RBA) delivered its biggest one-off interest rate hike in over two decades. Surpassing expectations a more modest rise to 0.6%, the Official Cash Rate (OCR) soared to 0.85%, a 50bps hike from the 0.35% previous.

This was the first time the RBA raised the interest rate in consecutive policy meetings in 12 years, as the board is confident in the strength of the economy and the labour market. With the central bank taking a hawkish approach to tackling inflation, the Aussie has seen a considerable boost.

The RBA admitted that inflation is likely to rise higher than previously predicted, with Reserve Bank of Australia Governor Philip Lowe signalling the RBA will continue to raise interest rates in the coming months as it attempts to tame inflation:

’The board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead. While inflation is lower than in most other advanced economies, it is higher than earlier expected. The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.’

With the global economic landscape still looking uncertain with the ongoing war in Ukraine and the subsequent impact on energy supply and prices, the road ahead could still be rocky. Treasurer of Australia Jim Chalmers understands said:

‘It is the universal expectation across economists and government and the Reserve Bank that this inflation challenge will get harder before it gets easier.’

The Australian Dollar has since shed a good portion of these gains, amid a souring of market risk appetite during the European trading session.

Pound (GBP) Wavers amid Temporary Political Stability

The Pound is enjoying mixed success today as Prime Minister Boris Johnson has escaped the no-confidence vote last night, putting an end to the political uncertainty that has plagued the landscape for several weeks.

But with 148 of his own MPs voting against him, the future doesn’t look so bright for Johnson, with many expecting this is the beginning of the end for the PM’s three-year premiership. By losing a large portion of support from his own party, political uncertainty could return in the near future, potentially weighing on Sterling.

Providing a modest boost to the Pound is the final readings for services PMI, where the sector expanded more than expected in May. The service’s index was upwardly revised to 53.4 from a previous estimate of 51.8. S&P Global Market Intelligence Economics Director Tim Moore, said:

‘May data illustrate a worrying combination of slower growth and higher prices across the UK service sector. The latest round of input cost inflation was the steepest since this index began in July 1996, while the monthly loss of momentum for business activity expansion was a survey record outside of lockdown periods.

‘There were bright spots in customer-facing parts of the economy during May, buoyed by a rapid recovery in consumer spending on travel, leisure and entertainment.’

GBP/AUD Exchange Rate Forecast: Lack of Domestic Data to Hurt the Pound?

Looking ahead, the Pound Australian Dollar (GBP/AUD) exchange rate could encounter more pressure and increased movement with several key data releases this week.

The Australian Dollar could see a modest boost as the NAB Business Confidence is released tomorrow, where an expected two-point rise could reflect the strengthening sentiment around the economic recovery.

Elsewhere, two key pieces of data out of China could impact the Australian Dollar with the release of inflation rate and the balance of trade.

With UK data thin on the ground for the rest of the week, the continued fallout from Boris Johnson’s vote of confidence could infuse volatility in the Pound as questions remain over the PM’s future.

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