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Pound Australian Dollar (GBP/AUD) Exchange Rate Slumps amid Surprise RBA Rate Hike

June 6, 2023 - Written by John Cameron

Pound Australian Dollar (GBP/AUD) Exchange Rate Slumps amid Surprise RBA Rate Hike

The Pound Australian Dollar (GBP/AUD) exchange rate cratered on Tuesday, following a surprise interest rate hike from the Reserve Bank of Australia (RBA).

At the time of writing, GBP/AUD traded at around AU$1.8639, a fall of just under 0.9% from Tuesday’s opening rates.

Australian Dollar (AUD) Rallies following Shock RBA Rate Hike

The Australian Dollar (AUD) soared against most major peers on Tuesday, following a surprise interest rate hike from the Reserve Bank of Australia.

The RBA published a rate hike of 25bps, raising their current rate to 4.1% from 3.85%. Markets had anticipated a pause from the bank, despite recent hawkish sentiments from policymakers.

The RBA’s accompanying statement read: ‘Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve. The Board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market.’

With this in mind, AUD investors appeared to bank on expectations of an additional interest rate hike in August, and moved to support the Australian Dollar during Tuesday’s session.

Furthermore, the RBA appeared to remove reference to medium term inflation expectations, which may have prompted investors to believe the bank lacked confidence in its current projections.

Pound (GBP) Weakens amid Profit Taking

The Pound (GBP) weakened against most of its peers on Tuesday, as investors continued to reprice Sterling following on from the previous week’s impressive gains.

These gains were prompted by a shock rise in core inflation, which led to the expectation that the Bank of England (BoE) would have to continue hiking interest rates in 2023 to reach a terminal rate of 5.5%.

Further to this repricing, the British Retail Consortium (BRC) published their measure of retail sales growth for May’s activity, which came in at 3.7% on a yearly basis – a sharp drop from the previous measure of 5.2%.

Helen Dickinson OBE, the Chief Executive of the BRC, commented: ‘With consumer confidence still recovering from record depths, and continued tightening of household incomes, we are unlikely to see substantial sales growth in the coming months. But, with signs that inflation has possibly peaked, retailers are hopeful that confidence will continue to improve.’

Elsewhere, a muted market mood may have further prevented the increasingly risk sensitive Pound from gaining much ground against its peers.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: AU GDP Data to Boost AUD?

Looking ahead for the Australian Dollar (AUD), early on Wednesday morning brings the publication of the latest GDP growth data.

This release reflects data for the first quarter. Currently, economists forecast that the Australian economy will have grown by 0.3% on a quarterly basis. As such, the economy is expected to have avoided a recession, which is likely to bring cheer to AUD investors.

However, any gains from this release could be limited by a slowdown in growth. While forecast to expand, the rate would have slowed from 0.5% if it prints accurately.

Before this release, the Reserve Bank of Australia Governor Philip Lowe is scheduled to deliver a speech. If he maintains a hawkish stance following the RBA’s surprise hike, the ‘Aussie’ could strengthen further.

On Thursday, the latest Australian trade balance data is forecast to release. The surplus is forecast to decrease slightly, which may weigh on AUD somewhat.

Meanwhile, the Pound (GBP) may continue being bogged down by a lack of impactful macroeconomic data. Because of this drought, Sterling may be unable to gain much ground against its peers.

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