Pound Australian Dollar (GBP/AUD) Softens Amid Hawkish RBA Bets

Pound Australian Dollar (GBP/AUD) Exchange Rate Softens amid Hawkish RBA Bets

At the time of writing, GBP/AUD traded at around AU$1.9089, a fall of roughly 0.2% from Monday’s opening rates.

The Australian Dollar (AUD) strengthened on Monday, as markets continued to bet on hawkish action from the Reserve Bank of Australia in the wake of last week’s inflation data.

With inflation proving to be more persistent than expected in Australia, markets expect that the central bank will likely keep interest rates unchanged for much longer than initially anticipated. Furthermore, some analysts expect that the RBA may even hike interest rates.

Warren Hogan, Chief Economic Advisor at Judo Bank, stated that: ‘Everything points to the fact that 4.35 per cent isn’t the right level for the cash rate. The RBA’s strategy this cycle doesn’t seem to be working. They were hoping we could do less than the rest of the world because we were more exposed to the nominal channel of monetary policy through variable rate mortgages.’

Furthermore, markets no longer expect the RBA to cut interest rates in 2024, with the expected start date shifting to February 2025, which could make it one of the last central banks to cut rates.

This, in tandem with an upbeat market mood, allowed the risk-sensitive Australian Dollar to gain ground against most major peers during Monday’s European session.

The Pound (GBP) traded in a mixed capacity on Monday, wherein it managed to gain ground against some peers but slipped elsewhere.

This was largely due to a lack of impactful macroeconomic data releases, which sapped sentiment towards Sterling during Monday’s session.

However, continued speculation around the next moves from the Bank of England (BoE) served to keep GBP afloat. While some policymakers have argued in favour of keeping monetary policy at restricted levels, others have spoken in favour of cutting interest rates.

With markets uncertain of the BoE’s next paths, GBP was likely underpinned by bets on tighter monetary policy.

Furthermore, an upbeat market mood likely further served to underpin the Pound against safer assets, due to its increasingly risk sensitive nature.

Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: Australian Retail Sales in Focus

Looking ahead for the Australian Dollar, the core catalyst of movement is likely to be the latest Australian retail sales data.

In March, sales are forecast to have slowed to 0.2% growth, down from 0.3% in February. This could weaken AUD by suggesting slipping consumer spending.

This data is accompanied by a slate of Chinese private sector data, due for publication on Tuesday.

The latest preliminary manufacturing PMI for April is due to print, and is forecast by economists to show a modest slowdown in growth, from 51.1 to 51. This could cap the ‘Aussie’ somewhat due to its nature as a Chinese proxy currency.

Furthermore, the latest non-manufacturing flash PMI is expected to show a slowdown from 53 to 52.2, which may apply further pressure by suggesting softening growth in China’s private sector.

For the Pound, meanwhile, impactful macroeconomic data releases are few and far between, which could shift the focus towards the final print of April’s manufacturing PMI.

If this confirms that the UK’s manufacturing sector fell back into contraction on a monthly basis, the Pound could see its appeal limited.

Elsewhere, risk appetite is likely to play a significant role in shaping the pairing. As the ‘Aussie’ is a more risk-sensitive currency, an improving market mood could lift it against the safer Pound.