May 08, 2023

GBPAUD pulled back from recent highs near 1.90 and could see a further correction with economic data this week.

GBPAUD – Daily Chart

GBPAUD – Daily Chart

GBPAUD has initial support at the 1.84 level for further downside. 

Australia will start the week with a consumer confidence figure from Westpac Bank. Consumer confidence has been unable to get above highs from last June. 

However, the Westpac-Melbourne Institute Index of Consumer Sentiment rose 9.4% month-over-month in April 2023 to the highest level over a year, 85.8. A pause helped the upturn in rate hikes by the RBA, but the central bank shocked markets with another raise this month, and confidence gains could evaporate. 

Australia’s central bank last week lowered its forecasts for inflation, wages and GDP growth this year, as its 11 interest-rate increases since last May slowed the economy down. “The Australian labour market is still very tight,” the RBA said. “Moreover, there are signs that asset prices – including the exchange rate and housing prices – have been responding to the expectation that interest rates may not increase.” 

The Australian numbers will guide the GBP v AUD ahead of the Bank of England’s latest decision on Thursday, where they will undoubtedly raise rates again. The US Federal Reserve and the ECB also raised rates by 25 bps, and the UK will follow. 

The Bank of England will likely raise interest rates for a 12th consecutive increase. Despite adding 4.4% to its benchmark rate, inflation has remained troublesome. 

“Previously we had seen the MPC holding Bank Rate at 4.25% but the April labour market and March CPI inflation data were too much to ignore,” said Peter Schaffrik at the Royal Bank of Canada.

According to a poll from Reuters, the MPC is expected to vote 7-2 in favour of another increase.

GBPAUD Forecast

The UK economy has seen an improvement recently after a recession seemed imminent. The S&P Global and the Chartered Institute of Procurement and Supply’s (PMI) indices for the services sector jumped to 55.9 points last month from 52.9 points in March. The most recent GDP numbers were also better than expected. 

“A strong rate of service sector growth meant that the UK economy started the second quarter of 2023 in a positive fashion. Overall private sector output expanded at the fastest pace for one year, despite another fall in manufacturing production during April,” said Tim Moore, economics director at S&P Global Market Intelligence. 

The UK market is on holiday again on Monday after Saturday’s coronation of King Charles. A holiday can slow productivity levels in the economy but lead to a boost in consumer spending. That will become clear in the UK’s next round of GDP figures.

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