GBP/AUD Falls After Aussie Inflation Data

GBP/AUD Drops as Aussie Gains Strength


The Aussie dollar gained ground against sterling on Wednesday as better than expected Australian inflation data has poured cold water on speculation that the RBA would be looking to cut interest rates further. The Bank of England minutes have also forced the cross downwards, the release of which caused the pound to lose ground against most of it’s major counterparts. The graph below shows GBP/AUD movement over the last week.

GBP/AUD 1 Week

The Australian dollar has been performing well of late and was the best performing of the major currencies on Tuesday. Over the last 7 days, the Aussie unit has gained nearly two percent against sterling, despite sterling’s continued strength. Aussie inflation data released on Wednesday morning came out better than expected, putting an end to speculation that the RBZ were considering another interest rate cut in the near term. With rising inflation, the RBA would be less likely to cut rates as this would lead to less saving and increased spending, pushing inflation up further. With inflation currently at 2.9%, at the top end of the RBA’s 2-3% target, there is little room to cut rates further.

”The Reserve Bank is probably happy to leave rates where they are for quite a while yet, and market pricing for some chance of a rate cut looks misplaced,” said Michael Blythe, chief economist at Commonwealth Bank.

“The underlying numbers look a fraction higher – they’re a warning sign that the inflation backdrop is not as benign as markets want to price in at the moment.”

On the sterling side of the cross, the pound took a knock on Wednesday morning after the Bank of England minutes revealed that none of the nine MPC members voted in favour of an interest rate hike just yet. Market reaction was somewhat muted however, and the pound began regaining the lost ground on Wednesday afternoon. Sterling lost around 0.3% against both the euro and the US dollar as a result. Having said that, sterling trading levels remain close to multi year highs for most crosses.

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