Pound Continues to Consolidate Against the Aussie

If Australia’s continuous fight to resuscitate a lengthy insufficient rate continues to make the antipodean currency a slacker among global currencies, the Pound-to-Australian Dollar exchange rate may likely maintain a climb over 1.84 in the coming weeks and months.

In the mid-week session, sterling rose from 1.83 versus the Australian Dollar as UK inflation startled on the above of market forecasts, with even the fundamental gauge of price increase above the consensus to hit 2%, precisely the Bank of England’s objective (BoE).

Although the Bank of England has recognized that short-term price increases may cause inflation to exceed its target due to pandemic-related instabilities in the supply of some of these products, it has cautioned that these inflationary pressures may be more than provisional, and has already stated that it may raise interest rates earlier than financial markets foresee.

The Pound-to-Australian Dollar rate rose from 1.83 on Wednesday, owing to uncertainty about the Reserve Bank of Australia’s (RBA) policy outlook. However, the exchange rate could ascend more in the following weeks if Australia’s lengthy and enduring confrontation to revitalize a long-insufficient inflation rate tends to lead the RBA to extend the life of its currency-corrosive quantitative easing (QE) scheme.

“The street has interpreted the minutes’ mood as dovish. This is owing to policymakers’ guarded approach, as well as the choices presented in relation to the choice on future government bond buying, which will be announced in the following month. The AUD/USD currency pair is now trading under 0.77, with the stronger USD impacting on the currency pair,” according to Jane Foley, a veteran FX analyst at Rabobank.

“We retain our prediction that the AUD/USD pair will struggle to hold levels over 0.78 over the next six months,” Foley says, “though this implies the RBA stays to eschew being perceived as less dovish than rest of the major central banks.”

After minutes from the RBA’s June meeting revealed that uncertainties surrounding the bank’s July political issue are delicately balanced, with a choice to prolong the duration of its bond-yield-crushing QE scheme as long as feasible as a plan to start tapering it this summer.

This is due to concerns about the perspective for Australian inflation, which has been consistently underneath the RBA’s target for years, prompting the financial institution to trim its interest rate multiple times even before the coronavirus arrived in 2020, making the RBA more responsive to the influence of exchange rates on consumer price pressures.

“In front of the FOMC, the AUD/USD is trading slightly below 0.77. If the FOMC is dovish, we anticipate the AUD to rise.” “We highlighted RBA Governor Lowe’s statement, ‘From Recovery to Expansion,’ as a potential lift to the AUD this week,” says Commonwealth Bank of Australia analyst Joseph Capurso.

“If Lowe utilizes today’s address to build the framework for a policy shift next month, we have great hopes that the AUD/USD will close the month at or about 0.80.”

The ramifications of these initiatives, as well as the AUD/USD, GBP/USD, and plenty of other exchange rates’ reactions to them thus far, indicate that Wednesday’s Pound-to-Australian Dollar rate of 1.83 represents the midpoint of a near-term trading range, with 1.81 acting as a nearly concrete block for a Pound that might ascend near to the 1.85 level against the Aussie in certain market situation.

This is because if the primary Aussie currency rate AUD/USD remains at 0.77 or lower for the whole period, the GBP/AUD rate will remain above 1.81 in markets where the major Sterling exchange rate GBP/USD is pushing the bottom of its tough 1.40-to-1.42 recent range.

Nevertheless, the Pound-to-Aussie rate, which is always a nearer reflection of price fluctuations in GBP/USD and AUD/USD, would conveniently start rising above 1.84 in any situation where both the major Sterling exchange rate is near the summit of its recent range and AUD/USD continues to underperform other peers, as it has conducted over the previous quarter.

“Powell’s overriding message will be that the Fed is still waiting for significant improvement, that inflation is mainly a passing trend, and that they are remaining cautious. This should maintain US real interest rates in negative zone,” according to Franulovich.