The Pound-Australian Dollar rate could edge higher if Chinese inflation disappoints and Australian sentiment stays weak, while rising gilt yields may cap Sterling.
The Pound to Australian Dollar (GBP/AUD) exchange rate traded in a narrow range on Tuesday as a decline in sentiment across the Australian economy has curbed AUD’s recent bullish momentum.
At the time of writing, GBP/AUD was trading at AU$1.8763. Virtually unchanged from the start of Tuesday’s opening levels.
DAILY RECAP:
The Australian Dollar (AUD) stalled on Tuesday, amid a deterioration in domestic consumer and business confidence.
The Westpac-Melbourne Institute Consumer Sentiment Index fell 5.2% in September to 84.4, reversing almost all of the 6% improvement recorded in August, with the survey pointing to growing concerns over household finances.
Businesses were similarly downbeat. The latest NAB Business Survey showed confidence falling two points to -8 in August, while business conditions dropped five points to -1 – the first negative reading since the COVID pandemic.
This has robbed the ‘Aussie’ of some of its recent momentum, after being propelled to a multi-month high by Reserve Bank of Australia (RBA) policy speculation after AUD investors grew increasingly hawkish in pricing in further monetary tightening from the bank this year.
The Pound (GBP) was muted on Tuesday as a fresh rise in oil prices fuelled renewed concerns over inflation and pushed UK government bond yields higher.
Brent crude climbed towards $100 a barrel on Tuesday morning after attacks on Saudi energy infrastructure intensified fears over disruptions to global energy supplies, adding to the inflationary pressures already weighing on markets.
The jump in energy prices prompted a broader sell-off in government bonds, with 10-year gilt yields edging higher after already reaching multi-year highs during the recent bout of market turmoil.
This added to concerns over the UK’s borrowing costs and the amount of fiscal headroom available to Chancellor John Healey ahead of his October Budget.
Near-Term GBP/AUD Forecast: Recovery in Chinese Inflation to Strengthen the ‘Aussie’?
Looking ahead to the middle of the week, the next catalyst of movement for the Pound to Australian Dollar exchange rate is likely to be the publication of China’s latest inflation figures.
The Australian dollar’s status as a proxy for China could see the ‘Aussie’ supported if August’s data shows prices began to accelerate again, after a protracted run of month-on-month disinflation.
Meanwhile, UK economic data remains in short supply through the middle of the week, which is likely to leave movement in the Pound to be driven by wider market trends.
Our currency coverage draws on live market data, official economic releases and published bank research.
