Pound to Australian Dollar Forecast: GBP/AUD Dips on RBA Rate-Hike Warning

June 19, 2024 - Written by David Woodsmith

STORY LINK Pound to Australian Dollar Forecast: GBP/AUD Dips on RBA Rate-Hike Warning

The Reserve Bank of Australia (RBA) held interest rates at 4.35%, in line with consensus forecasts and there were no updated forecasts at this meeting.

Comments from Governor Bullock were, however, more hawkish than expected which helped underpin the Australian currency amid further warnings that interest rates may have to increase.

This tough stance contrasts with expectations that the Bank of England will edge closer to a rate cut at this week’s policy meeting.

BDO Economics partner Anders Magnusson commented; “while the Swiss, Canadian and European central banks had cut interest rates, Australia’s economy is not yet ready to follow”.

The Australian dollar posted net gains with Wall Street gains also helping to underpin the Australian currency.

ING commented; “The Aussie dollar is the best performer in G10 this morning following the hawkish RBA hold. This has reinforced our preference for AUD to outperform in the coming weeks, should US data continue to favour a rotation into high-beta currencies.”

The Pound to Australian dollar (GBP/AUD) exchange rate dipped to 2-week lows just below 1.9150 from 1.9220 ahead of the policy decision.

According to the RBA, inflation has fallen substantially since its 2022 peak and conditions in the labour market have eased further over the past month.

It did, however, warn that the easing of inflation has been slower than expected previously and is still high.

It added that the RBA is not ruling anything in or out to ensure that inflation returns to target in a reasonable timeframe.

According to Governor Bullock, there was a discussion on whether to hike rates at the meeting and pointed out that the bank is alert to upside inflation risks.

She added; “We need a lot to go our way if we’re going to bring inflation back down to the 2 per cent target range.”

A key message from Bullock was the high degree of uncertainty.

She also pointed to the importance of forthcoming inflation data and noted; “the June CPI is going to be an important one because it’s going to give us a much more comprehensive view of what’s going on.”

EY economist Cherelle Murphy pointed out that fiscal policy is also a potential headache for the central bank with tax cuts due to come into effect on July 1st.

According to Murphy; "Then, of course, as we look into the second-half of the year, we also have tax cuts to think about, real wages are rising again. Will all of the factors together cause the consumer to actually feel better and start spending again?”

She added; "It is possible, so it's definitely not an easy time to be a central banker in 2024."

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TAGS: Pound Australian Dollar Forecasts