Pound-Australian Dollar could rebound if the RBA maintains a dovish outlook, although weaker UK growth risks limiting Sterling’s recovery.
The Pound to Australian Dollar (GBP/AUD) exchange rate traded in a wide range last week as shifting expectations surrounding a US-Iran ceasefire drove volatility in the risk-sensitive ‘Aussie’.
At the time of writing, GBP/AUD was trading around AU$1.9111, down approximately 0.5% over the week.
DAILY RECAP:
The Australian Dollar (AUD) enjoyed a positive start to last week, with the risk-sensitive currency drawing support from upward revisions to Australia’s latest PMI surveys and renewed hopes for a US-Iran ceasefire.
Risk appetite improved following suggestions from US officials that an agreement with Iran to reopen the Strait of Hormuz was close.
However, the ‘Aussie’ struggled to sustain these gains during the second half of the week as investor optimism began to fade.
The anticipated deal to reopen the Strait of Hormuz failed to materialise, leaving investors increasingly cautious towards the Australian Dollar despite Australia recording an unexpected trade surplus in June.
Meanwhile, the Pound (GBP) struggled to generate meaningful momentum as a quiet UK economic calendar left investors with few domestic catalysts.
Adding to the subdued trading conditions was a period of relative stability in the UK bond market.
After several weeks of heightened volatility surrounding the government’s fiscal agenda, gilt yields showed little movement, with the benchmark 10-year yield holding close to 5%.
While Sterling investors looked towards overseas developments for direction, uncertainty surrounding a potential US-Iran ceasefire also limited conviction in currency markets.
Near-Term GBP/AUD Forecast: Dovish RBA to Weigh on the ‘Aussie’?
Looking ahead, the Reserve Bank of Australia’s (RBA) latest interest rate decision is expected to be the main driver of the Pound to Australian Dollar exchange rate.
No change in interest rates is expected, leaving investors focused on the RBA’s forward guidance.
If Governor Michele Bullock maintains a dovish stance and continues to push back against expectations for further policy tightening, the Australian Dollar could weaken during the first half of the week.
Meanwhile, GBP investors will turn their attention to the UK’s preliminary second-quarter GDP figures.
Markets expect growth to slow notably from the first quarter. A sharper-than-expected slowdown could further weaken expectations for another Bank of England (BoE) interest rate hike later this year and weigh on Sterling.
Our currency coverage draws on live market data, official economic releases and published bank research.
