GBP AUD Near Resistance with Breakout Possible 

GBP AUD Gains, but Traders Await Economic Data 

The GBP AUD exchange rate was higher on Wednesday with sterling aiming for a third consecutive day in the green. There is resistance from a recent push higher at 1.7800. We could see a rebound in the pound if it can get above there. 

The GBP to AUD rate traded at 1.7720 after UK inflation data showed a small rise. 

Reserve Bank Governor admits to ‘reputational damage’ 

The RBA Governor Philip Lowe acknowledged the Bank’s damaged reputation but refused to apologise for previous comments. 

The leader of Australia’s Central Bank said in late 2021 that rates would stay low into 2024 “at the earliest”; he also attacked money markets that predicted interest rate hikes. 

The Bank increased interest rates in May and June. However, he warned of more to come. To say that there would be no rate hikes until 2024 and now be on a path to normalised rates by then is a drastic policy error. Aussies took the 2024 comments as a green light to dive into the property market, or at least to hold off on adjusting their mortgages. 

“The way the target ended in late 2020 was disorderly, and it did cause some reputational damage to the RBA,” Mr Lowe said at a Chamber of Commerce speech. 

“Earlier communication from the bank could have eased the situation although the end of a target that was losing credibility was always likely to be associated with volatility in market pricing.” 

Rabobank currency strategist, June Foley, said in a research piece: 

“The sharp drop in iron ore prices this month highlight’s Australia’s potential sensitivity to China’s housing market fears and to its broader economic outlook.” 

“The AUD is likely to be sensitive to risks regarding Chinese economic output and to broader concerns regarding slowing global growth,” she added. 

The bank still sees the potential for another 50bps rate hike at the July 5 meeting. 

UK inflation higher in another nod to higher interest rates 

UK inflation numbers came in as expected at 9.1%, for a 0.1% year-on-year gain. 

The government and Bank of England will be happy at just the 0.1% rise. However, prices remain at a 40-year high. This led to the current rail strike with threats of similar action from postal workers. 

US investment bank Citi had further bad news for the UK economy, predicting that food inflation will hit 20% in the first quarter of next year for Britain. 

“Food inflation overshot our forecasts. We now expect price growth here to peak at a little over 20% in Q1 2023, with producer price inflation here continuing to accelerate,” Citi economist Benjamin Nabarro wrote. 

Energy and food prices have been the key drivers of inflation in the country with petrol hitting new highs this week, according to the RAC, as oil prices remain elevated at $100 and the rail strike adds to cars on the road. 

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