Pound Australian Dollar Exchange Rate News: GBP/AUD Rises as RBA Decision Dents AUD

July 5, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Rises as RBA Decision Dents AUD

Pound (GBP) Buoyed by Upwardly Revised PMI

The Pound (GBP) is strengthening against the Australian Dollar (AUD), despite initially softening against some of its other peers.

As today’s trade began, renewed worries about the UK economy put some pressure on the Pound.

Sainsbury’s supermarket revealed its latest results, which showed a sharp decline in sales. Simon Roberts, Sainsbury’s CEO, said that the results reflected a drop in consumer spending as the rising cost of living squeezes household budgets.

With prices, taxes and interest rates rising, while wage growth lags behind, the UK is facing a cost-of-living crisis. Economists fear this could tip the UK into a recession in the coming months, and these concerns have been weighing heavily on the Pound over the last few months.

However, Pound Sterling did enjoy some fairly upbeat news this morning.

The UK’s finalised services PMI printed higher than the previous estimates. Rather than holding steady at 53.4, the PMI score rose to 54.3 in June, showing a faster pace of expansion in the country’s vital services sector.

This welcome surprise has cheered GBP investors, giving Sterling a boost.

That said, the PMI did contain some warning signs about the UK economy. Although business activity improved in June, the outlook for the future is less rosy.

New order growth dropped to a 16-month low, while business expectations declined to their weakest level in two years.

Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply (the company that co-authored the report), commented:

‘The relative calm demonstrated by the slight uplift in the headline figure belies the underlying picture of businesses weighed down by rising costs, the struggle to build operating capacity and a shortage of raw materials caused by war and continuing supply chain disruption.’

As a result, Sterling may find its upside limited.

Australian Dollar (AUD) Declines following RBA Decision

Meanwhile, the Australian Dollar is on the back foot today after the latest interest rate decision from the Reserve Bank of Australia (RBA) disappointed AUD investors.

Although the RBA chose to raise interest rates by 50 basis points – its third consecutive rate rise – markets broadly expected the move so it failed to boost AUD.

In addition, the RBA seems unlikely to enact a 75-bp rate hike, as the Federal Reserve did in June, disappointing the more bullish investors.

There was also no sign that the bank would take a more hawkish approach in the coming months. In fact, RBA Governor Philip Lowe said that the bank would be attentive to spending data and that this would guide future policy. This is in stark contrast to Fed Chair Jerome Powell’s recent comments that the US central bank would prioritise bringing down inflation above all else.

Further adding to the risk-sensitive Australian Dollar’s downside, a bearish mood is sweeping markets today. This downbeat tone is seeing investors shun the riskier ‘Aussie’ for safer currencies.

GBP/AUD Exchange Rate Forecast: BoE Warnings to Trim Sterling’s Gains?

As the day progresses, GBP/AUD may begin to relinquish some of its gains.

The Bank of England’s (BoE) recent Financial Stability Report warned that ‘The economic outlook for the UK and globally has deteriorated materially’.

The report added:

‘[H]igher prices, weaker growth and tighter financing conditions will make it harder for households and businesses to repay or refinance debt. Given this, we expect households and businesses to become more stretched over coming months. They will also be more vulnerable to further shocks.’

These concerns could start to pressure the Pound as today’s session unfolds.

However, if the market mood remains downbeat, the riskier ‘Aussie’ Dollar may struggle to capitalise on any downside in the Pound.

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