Pound Australian Dollar Exchange Rate News: GBP/AUD Muted in Wake of RBA Interest Rate Hike

November 1, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Muted in Wake of RBA Interest Rate Hike

GBP/AUD Exchange Rate Range Bound amid Lukewarm Market Mood

The Pound to Australian Dollar (GBP/AUD) exchange rate was trading in a narrow range on Tuesday as the ‘Aussie’ shed its overnight gains.

At time of writing the GBP/USD exchange rate traded at around AU$1.7895, which was roughly unchanged from Tuesday’s opening levels.

Australian Dollar (AUD) Steady Despite Dovish RBA Hike

The Australian Dollar (AUD) held its ground on Tuesday. despite a dovish interest rate hike from the Reserve Bank of Australia (RBA).

The central bank followed through with another 25bps hike in their latest policy meeting. Whilst this hike was accompanied with the rhetoric of curbing inflation, the RBA’s dovish monetary policy has fallen behind that of other central banks, which caused headwinds for the ‘Aussie’.

Recognising that the consumers and investors might be displeased with the small hike, Governor Philp Lowe said in a statement:

‘One source of uncertainty is the outlook for the global economy, which has deteriorated over recent months. Another is how household spending in Australia responds to the tighter financial conditions. The Board recognises that monetary policy operates with a lag and that the full effect of the increase in interest rates is yet to be felt.’

While the dovish RBA rate hike came as a disappointment to AUD investors, the ‘Aussie’ was able to avoid any losses thanks to a prevailing risk-on mood.

The boost in risk appetite came from China’s stronger-than-expected manufacturing PMI. The index rose from 48.1 to 49.2 in October. While this left the index in contraction territory it beat forecasts for a more modest rise to 49. The Australian Dollar acts as a proxy currency for China, so for the stronger-than-expected release reflected positively on AUD.

Pound (GBP) Trading in Broad Range amid PMI Release

The Pound (GBP) seemed to be mixed on Tuesday as investors had varied reactions to the manufacturing PMI released in the morning.

According to October’s final figures the manufacturing index was revised slightly higher to 46.2 up from last week’s preliminary reading of 45.8. However, despite surprising to the upside, October’s index shows the contraction in the UK’s factory sector continued to deepen, compounding recession concerns.

Rob Dobson, Director at S&P Global Market Intelligence, said of the data:

‘The deepening downturn also impacted trends in employment, purchasing and business optimism. The rate of job creation came to a near-standstill, while input buying was cut back sharply – hitting demand at suppliers. Business optimism sank to a 28-month low as companies noted that the horizon was darkening amid concerns about recession and the impact of the cost-of-living crisis.’

However, the Pound’s losses were somewhat limited by Bank of England (BoE) rate hike bets. GBP investors have priced in a 75bps hike at the Bank of BoE’s next policy meeting on Thursday.

GBP/AUD Exchange Rate Forecast: To Be Driven By Rate Rise Bets?

Looking ahead, the Pound Australian Dollar exchange rate could be driven by continued interest rates bets amongst GBP investors.

Whilst most of the market is expecting a 75bps hike from the BoE on Thursday, however this would contradict the bank’s previous dovish bias.

Also adding uncertainty is the delay to the government’s fiscal plan meaning the bank is making a decision without fully understanding of the UK’s financial future. With this in mind, it’s possible that the bank could peruse a 50bps. If that becomes true, then the Pound could face headwinds as investors sell-off GBP to offset a lower hike.

Turning to the Australian Dollar, the US Federal Reserve’s interest rate decision is due on Wednesday. As such the risk sensitive ‘Aussie’ could face headwinds as market sentiment sours ahead of the policy decision.

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TAGS: Pound Australian Dollar Forecasts