Pound-to-Australian Dollar Forecast: Aussie Inflation Figures Could Revive RBA Tightening Bets

The Pound to Australian Dollar (GBP/AUD) exchange rate rallied last week as investors pared back expectations for further Reserve Bank of Australia interest rate hikes, while easing UK political tensions helped support Sterling.

At the time of writing, GBP/AUD was trading around AU$1.8820, up approximately 1% over the week.

DAILY RECAP:

The Australian Dollar (AUD) retreated from multi-year highs last week as investors reassessed the outlook for Reserve Bank of Australia policy.

Market sentiment was already cautious amid ongoing uncertainty surrounding developments in the Middle East, which tended to discourage demand for risk-sensitive currencies such as the ‘Aussie’.

However, the main driver of AUD weakness was a significant repricing of Australian interest rate expectations.

The process began after the release of the latest Reserve Bank of Australia meeting minutes, which suggested policymakers were becoming increasingly concerned about the impact of higher borrowing costs on household spending and economic growth.

Expectations for another rate increase were then dealt a further blow when Australia’s latest labour market report revealed an unexpected rise in unemployment and a decline in employment.

The weaker jobs figures prompted investors to scale back expectations for additional monetary tightening, placing sustained pressure on the Australian Dollar through the latter part of the week.

Meanwhile, the Pound (GBP) delivered a surprisingly resilient performance despite a run of disappointing UK economic releases.

Employment data showed rising unemployment and softer wage growth, inflation slowed more sharply than expected, while PMI surveys revealed an unexpected contraction in the UK services sector.

Retail sales figures also disappointed, highlighting ongoing pressure on consumer spending.

Despite these setbacks, Sterling continued to find support as investors focused on an improving domestic political backdrop.

Prime Minister Keir Starmer avoided an immediate leadership challenge, while comments from Andy Burnham supporting existing fiscal rules helped reassure markets over the future direction of government policy.

This contributed to a notable decline in gilt yields from the multi-decade highs seen earlier in the month and helped underpin demand for the Pound.

GBP/AUD Forecast: Australian Inflation Data in Focus

Looking ahead, Australia’s monthly CPI indicator is likely to be the key event for GBP/AUD exchange rates this week.

A stronger-than-expected inflation reading could revive expectations that the Reserve Bank of Australia may still need to tighten policy further, potentially helping the Australian Dollar recover some recent losses.

Conversely, another softer inflation print may reinforce expectations that policymakers are nearing the end of their tightening cycle, which could leave AUD vulnerable.

For Sterling, the domestic economic calendar is relatively quiet.

As a result, investors are likely to remain focused on political developments and movements in UK government bond markets.

Further easing in gilt yields and continued political stability may help the Pound maintain support despite ongoing concerns surrounding the UK economic outlook.