The Pound-Australian Dollar could remain under pressure if UK GDP disappoints, although weaker Australian confidence data may offer Sterling some relief.
The Pound to Australian Dollar (GBP/AUD) exchange rate slumped to a fresh three-month low last week as the ‘Aussie’ continued to be underpinned by hawkish Reserve Bank of Australia (RBA) interest rate speculation.
At the time of writing, GBP/AUD was trading at AU$1.8796. Down roughly 0.5% from the start of last week’s session.
DAILY RECAP:
The Australian Dollar (AUD) initially faced some headwinds last week as the turmoil in the global bond market prompted investors to limit exposure to risk-sensitive currencies.
However, the ‘Aussie’ subsequently staged a strong recovery, climbing to fresh multi-month highs against many of its peers following the publication of Australia’s latest GDP figures.
According to data published by the Australian Bureau of Statistics (ABS), Australia’s economy expanded by 0.4% in the second quarter, exceeding forecasts for a 0.3% expansion, while annual growth accelerated to 2.1% – also ahead of expectations for a 1.8% increase.
The data reinforced RBA rate hike expectations, with the odds of another 25-basis-point rate hike at the central bank’s September meeting rising to around 70%, up from roughly 50% before the GDP figures were released.
The Pound (GBP) faced significant resistance last week, with the currency being hit particularly hard by the sell-off across global bond markets.
UK gilts came under particularly heavy pressure, with the yield on 10-year government bonds climbing above 5.25% and briefly reaching its highest level since 2008, while 30-year gilt yields approached 5.9%, marking their highest level since 1998.
The moves reflected the broader global bond sell-off, but concerns over the UK’s fiscal position added to the pressure on Sterling, with GBP investors concerned that the increase in borrowing costs could further erode the fiscal headroom available to Chancellor John Healey ahead of his first Autumn Budget.
Near-Term GBP/AUD Forecast: Soft UK GDP Print to Sap Sterling Sentiment?
Turning to this week’s session, the Pound to Australian Dollar exchange rate may come under pressure with the publication of the UK’s latest GDP figures.
Consensus estimates predict month-on-month GDP growth will have slowed in July, which could weigh on Sterling as it further complicates the Bank of England’s (BoE) policy outlook.
Meanwhile, Australia’s latest consumer and business confidence figures may weigh on the ‘Aussie’ this week if they point to a deterioration in morale.
Our currency coverage draws on live market data, official economic releases and published bank research.
