Pound-Australian Dollar could come under pressure if the Bank of England pushes back on rate hike bets, while improving risk sentiment may support the Aussie.
The Pound to Australian Dollar (GBP/AUD) exchange rate rebounded from a three-month low last week as market risk appetite slumped.
At the time of writing, GBP/AUD was trading at AU$1.8835. Up almost 0.4% from the start of last week’s session.
Pound to Dollar (GBP/USD): 1.352622 (-0.01%)
Australian Dollar to Dollar (AUD/USD): 0.716529 (-0.08%)
DAILY RECAP:
The Australian Dollar (AUD) was initially resilient this week, with growing expectations of further interest rate hikes from the Reserve Bank of Australia (RBA) helping the ‘Aussie’ to weather a series of weaker domestic indicators.
Consumer confidence fell sharply in September, while the latest NAB survey also pointed to a deterioration in business sentiment.
Coupled with a subdued market mood, this left the ‘Aussie’ to trade sideways against the bulk of its peers through the first half of the week.
However, AUD struggled to sustain this support through the latter half of the week as risk sentiment deteriorated further as escalating tensions in the Middle East drove oil prices sharply higher, fuelling fresh concerns over global inflation.
The Pound (GBP) was flat through the first half of last week, with Sterling initially holding its ground as John Healey delivered his first major speech as UK Chancellor.
While GBP investors welcomed Healey’s optimism on growth, they were left a little wary about his evasive answers on tax policy.
Renewed turmoil across global bond markets then kept Sterling rangebound as they pushed UK borrowing costs sharply higher.
Concerns about the inflationary risks of rising energy prices propelled 30-year gilts to 5.82% at the UK government bond sale on Tuesday, their highest level seen since 1998.
The Pound then began to strengthen against its more risk-sensitive peers as we entered the second half of the week as the mood soured.
Sterling relinquished some of these gains as sentiment improved again on Friday, but was able to temper these losses with the publication of stronger-than-expected UK GDP figures.
Near-Term GBP/AUD Forecast: Dovish BoE to Sink Sterling?
Looking ahead, the primary catalyst of movement for the Pound to Australian Dollar exchange rate this week will likely be the Bank of England’s (BoE) latest interest rate decision.
Consensus estimates see the BoE leaving interest rates on hold when it concludes its September policy meeting on Thursday, placing the focus on the bank’s forward guidance.
If the bank maintains its cautious messaging and pushes back at all on speculation that it will hike rates later in the year, it’s likely to trigger fresh weakness in the Pound.
Meanwhile, in the absence of any notable domestic data, movement in the Australian Dollar will be driven by market risk sentiment this week.
This may see the ‘Aussie’ firm if the Gulf states and Iran can reach an agreement to at least temporarily reopen the Strait of Hormuz, in a meeting reportedly being held on Monday in Oman.
Our currency coverage draws on live market data, official economic releases and published bank research.
