Pound Australian Dollar Exchange Rate News: GBP/AUD Climbed as RBA Raised Interest Rates to Nine-Year High

October 4, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Climbed as RBA Raised Interest Rates to Nine-Year High

Australian Dollar (AUD) Wavered amid Dovish Rate Hike

The Australian Dollar (AUD) struggled for much demand on Tuesday as the Reserve Bank of Australia (RBA) raised interest rates for the sixth time.

Despite another lift, the central bank opted for a smaller 25bps hike, falling short of market predictions. A more dovish approach from the RBA sapped demand as inflation continues to wreak havoc in global economies. Philip Lowe, RBA Governor, defended the smaller hike as he expressed the concerns the RBA have of the deteriorating global economy. In a statement accompanying the decision, Lowe added:

‘The Board is committed to returning inflation to the 2% to 3% range over time. Today’s increase in interest rates will help achieve this goal and further increases are likely to be required over the period ahead.’

Meanwhile, lending some considerable support to the Australian Dollar going forward is the perceived resilience of the Australian economy. The labour market remains very tight with employers struggling to hire workers. Lowe added:

‘The Australian economy is continuing to grow solidly, and national income is being boosted by a record level of the terms of trade.’

Pound (GBP) Continued to Enjoy Rare Tailwinds

The Pound (GBP) modestly climbed against its rivals on Tuesday amid renewed confidence from investors after the U-turn from the government over tax cuts.

The market meltdown that followed Chancellor Kwasi Kwarteng’s unveiling of unfunded tax cuts soured confidence in the UK economy and sent Sterling sinking.

However, Prime Minister Liz Truss announced on Monday that it will be shelving the 45p top tax rate cut. Since then, the Pound has been enjoying a renaissance of demand.

Also lending some modest support to the Pound is Kwarteng announcing he intends to release his medium-term fiscal plans ahead of the proposed November release date. How the UK government intends to tackle the spiralling debt problem, as well as funding details for its sweeping growth plan. An end to economic uncertainty could boost investors’ spirits, and in turn, the Pound.

Mel Stride, Chair of the Treasury committee, has said that by moving the plan forward could restore some much-needed confidence in the UK government. Stride said:

‘If the forecast stacks up, then that will be critical in calming the markets, and the implications of that clearly are things like lower interest rate rises than would otherwise occur, which of course is going to matter to millions of people around the country when it comes to their mortgages.’

Meanwhile, Shell CEO has said that the UK government needs to tax energy companies to help the most vulnerable. Ben van Buerden, CEO of Shell, explained:

‘One way or another there needs to be government intervention. Protecting the poorest, that probably may then mean that governments need to tax people in this room to pay for it.’

GBP/AUD Exchange Rate Forecast: Further Reversals to Bolster the Pound?

Looking ahead, the Pound Australian Dollar exchange rate could see further movement if the UK government decide to scrap other parts of the mini-budget. Any further developments in Truss’ government plans could see Sterling continue its modest recovery.

Meanwhile, retail sales for Australia will be released in the early hours of Wednesday. A ninth straight month of growth could boost the ‘Aussie’ if forecasts of a 0.9% increase prove true.

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TAGS: Pound Australian Dollar Forecasts