GBP/AUD Outlook: Pound Targets 4-Year Best vs Australian Dollar

December 10, 2024 - Written by Tim Boyer

STORY LINK GBP/AUD Outlook: Pound Targets 4-Year Best vs Australian Dollar

Stronger expectations of a Reserve Bank of Australia (RBA) interest rate cut in the first quarter of 2025 undermined the Australian dollar on Tuesday.

The Australian dollar to dollar (AUD/USD) exchange rate dipped to just below 0.6400 and close to 4-month lows.

The Pound to Australian dollar (GBP/AUD) exchange rate strengthened to 1.9950 and close to 4-month highs.

The 2.0000 level will be a key focus following the latest move and a sustained move above this level would represent a 4-year high for the pair.

The RBA held interest rates at 4.35% following the latest policy meeting which was in line with consensus forecasts.

There was, however, a shift in the statement with the central bank stating that; “Recent data on inflation and economic conditions are still consistent with these forecasts, and the Board is gaining some confidence that inflation is moving sustainably towards target."

Governor Bullock stated that the shift in language was deliberate and, although she did not make any pre-commitment on rates, there were hits that some softness in data would lead to a cut early next year.

The RBA does not meet in January with the next meeting in February.

Bullock was still cautious and stated that further progress on inflation was needed.

City Index senior market analyst Matt Simpson, commented; "The RBA have just removed their hawkish bias, which is an important first step towards acknowledging cuts that markets are already pricing in for next year."

He added; "The question now is whether they'll sneak in a cut in Q1."

According to Deutsche Bank’s Phil Odonaghoe; “While the Governor also indicated on numerous occasions a reluctance to provide forward guidance and emphasized a heavy reliance on upcoming data, that very specific timeframe reference to upcoming data is important.”

He expects a cut at the February meeting.

China developments also had a significant currency impact for the second day running. The Australian dollar was boosted on Monday by expectations of a looser monetary policy out of Beijing, but the latest trade data, released on Tuesday, was weaker than expected which triggered fresh concerns over global trade volumes and hurt the Australian currency.

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TAGS: Pound Australian Dollar Forecasts