The Pound Australian Dollar (GBP/AUD) exchange rate trended sideways on Wednesday. The pairing came under pressure from expectations of additional rate hikes from the Reserve Bank of Australia (RBA) and a risk-on mood.
On the other hand, below-forecast Australian GDP data and a drop in Chinese exports lent support to GBP/AUD. Bank of England (BoE) rate hike bets also underpinned the exchange rate.
At time of writing the GBP/AUD exchange rate was at around AU$1.8587, which was virtually unchanged from that morning’s opening figures.
Australian Dollar (AUD) Exchange Rates Firm as RBA Governor Lowe Signals Further Rate Hikes
The Australian Dollar (AUD) gained on Wednesday. The risk-sensitive ‘Aussie’ benefitted from a return of global risk appetite. Additionally, hawkish commentary from RBA officials lent support to AUD.
The bets on additional RBA policy tightening came after a speech from central bank Governor Philip Lowe on Wednesday. Lowe’s speech came after the RBA’s shock 25bps interest rate hike earlier this week and saw the Governor signal that further policy tightening may be necessary.
Speaking at Morgan Stanley’s Australian conference, Lowe outlined how rate hikes were needed to bring inflation down:
‘The tool that the RBA has to achieve this balance is interest rates. I acknowledge that the use of this tool comes with complications. Its effects are felt unevenly across the community, with rising interest rises causing significant financial pressure for some households. But this unevenness is not a reason to avoid using the tool that we have.’
Additionally, the ‘Aussie’ was lifted by a rise in iron ore prices. The commodity continued to rebound from hitting six-month lows at the end of May.
The Australian Dollar’s upside was limited by evidence of weaker economic activity in Australia, however. First quarter GDP growth figures cooled by more than forecast, printing a 0.2% expansion in the country’s economy.
The figures represented the weakest pace in expansion in over a year, with inflation-fuelled price rises and higher interest rates limiting consumer spending.
A greater-than-expected drop in China’s export levels also kept pressure on AUD on Wednesday. Exports fell more-than-forecast by 7.5% in May. The data casted doubts on global demand and the country’s ongoing economic recovery.
Speaking on the Chinese trade data, chief economist at Pinpoint Asset Management Zhiwei Zhang said:
‘The weak exports confirm that China needs to rely on domestic demand as the global economy slows. There is more pressure for the government to boost domestic consumption in the rest of the year, as global demand will likely weaken further in the second half.’
Pound (GBP) Exchange Rates Muted as OECD Outlines Poor Performance for UK Economy
The Pound (GBP) saw limited movements on Wednesday amid thin trading conditions. A risk-on mood underpinned Sterling over the course of the day.
Sterling’s downside may also have been limited by bets on further interest rate increases from the Bank of England. Markets are betting on interest rates climbing to at least 5.5% by the end of 2023.
Pessimistic forecasts for the UK economy weighed on the Pound, however. The latest analysis from the Organisation for Economic Co-operation and Development (OECD) stated that the UK is set to have the second-worst growth of any G7 economy in 2023.
GBP/AUD Exchange Rate Forecast: Will Strong Chinese Inflation Boost AUD?
Looking to the remainder of the week for AUD, the latest Australian trade figures on Thursday could bolster the currency if they print as forecast. April’s data is expected to indicate a trade surplus close to the previous month’s reading. A slight downturn in the data could limit any gains for the currency, though.
Chinese inflation data on Friday could also to push the Australian Dollar higher if the figures print as forecast. May’s rate of inflation is expected to edge higher. The data could help to lessen fears of disinflation in the world’s second-largest economy.
The Pound, meanwhile, will see no further significant data releases this week. Movement in Sterling may be inspired by bets on BoE interest rate hikes.