The Pound-Australian Dollar could extend gains if Australian inflation cools sharply, although hawkish RBA signals may limit any downside for the Aussie.
The Pound to Australian Dollar (GBP/AUD) exchange rate crept higher on Tuesday as a deterioration in risk sentiment sapped the appeal of the ‘Aussie’.
At the time of writing, GBP/AUD was trading at AU$1.9091. Up around 0.2% from the start of Tuesday’s opening levels.
DAILY RECAP:
The Australian Dollar (AUD) came under pressure on Tuesday as renewed uncertainty surrounding US sanctions on Iran weighed on global risk appetite.
The measures announced by US Treasury Secretary Scott Bessent include sanctions against countries maintaining commercial ties with Tehran.
As China remains Iran’s largest buyer of oil, the sanctions risk a fresh deterioration in trade relations between Washington and Beijing, particularly after the Chinese Foreign Ministry responded by claiming it ‘will do what is necessary’ to protect China’s interests.
The resulting deterioration in risk appetite proved particularly challenging for the ‘Aussie’ given Australia’s close links to the Chinese economy.
However, helping to limit the downside in AUD exchange rates through Tuesday’s Asian session was the publication of the minutes from the Reserve Bank of Australia (RBA) August policy meeting, which struck a hawkish tone as policymakers remain concerned by high inflation.
While able to tick higher against the Australian Dollar, the Pound (GBP) was left rangebound against most of its other peers on Tuesday.
Sterling lacked direction through the European session amid the absence of any notable UK economic indicators.
While a modest pullback in UK government borrowing costs was seen as positive for GBP, it was offset by a weakening of Bank of England’s (BoE) interest rate expectations.
Near-Term GBP/AUD Forecast: Cooling Inflation to Sink the ‘Aussie’?
Looking ahead to the middle of the week, the Pound Australian Dollar exchange rate may appreciate following the publication of Australia’s latest consumer price index.
Consensus estimates predict the July’s monthly CPI figures will report a sharp slowdown in headline inflation, with forecasts it will plunge from 3.8% to a near one-year low of 3.2%.
This could weigh heavily on the ‘Aussie’ if it leads to a dovish repricing of RBA rate cut expectations.
Meanwhile, Wednesday will also bring the release of the Confederation of British Industry’s (CBI) latest distributive trades index, which may offer modest support to Sterling if it reports the UK’s retail sales balance continued to improve this month.
Our currency coverage draws on live market data, official economic releases and published bank research.
