AUDGBP Back Above 0.5600 with Inflation Update Coming

AUD GBP Trades Above 0.5300 Ahead of Consumer Confidence

The AUDGBP exchange rate is 0.05% lower on Tuesday morning, but the pair saw Aussie dollar strength on Monday ahead of the latest inflation update from the Australian economy. Markets expect a higher print for prices and this could impact the debate over monetary policy in the weeks ahead if the easy money policies are seen to be adding to price pressures.

The AUD to GBP trades at 0.5610 and this is another chance for the Aussie to target the 2020 highs at 0.5720 but the current level has been hard to crack.

Australian inflation will dominate AUD to GBP

With no UK data this week, attention will be focused on the latest Australian inflation update. A higher number is expected, but any upside surprises could put pressure on the RBA to change its bond-buying program and spark another debate about the pace of inflation and interest rates.

The inflation debate in the US has seen former Treasury secretary Larry Summers suggesting that hopes the inflation rate can’t climb quickly are “just plain wrong”. US inflation for March jumped more than expected and Canada also made moves to wind down its asset purchases at their recent interest rate announcement.

In Australia, analysts are looking for inflation to rise 0.9% in March to an annual 1.4% and for central bank’s favoured measure to rise by 0.5% to 1.3%. A rise in rent costs, alongside home-building and utilities is expected to impact the rate. There will also be pressure from oil prices with the recent rise in crude and this will add to the upside.

Australia can withstand the EU carbon tariffs

Australia’s important commodities sector can withstand EU tariffs on carbon according to research from Victoria University.

The EU has committed to significant emissions reductions of 55% on 1990 levels by 2030, and to being net zero by 2050. To help it achieve those targets, the European Commission President proposed a carbon tariff, which has bene called the carbon border adjustment mechanism, or CBAM.

Initially, the study finds that the tariffs will reduce demand for Australian exports of coal, and steel, which will lower export prices and volumes. A lower Aussie dollar would then make other markets not affected by the CBAM more attractive and eventually pick up the weight.

Canada has also been boosted by demand for raw materials and the Reserve Bank of Australia probably won’t be able to fool markets for long with their projection of a 2024 rate rise. The market will see inflation rising in the future and this will pressure the bank to wind down bond purchases and consider cooling the housing market.

The AUDGBP has bene trading in a tight range throughout the year, but if inflation is seen to pick up, it will increase debate with the RBA and could be the spark that begins changing the trend in the Aussie dollar vs the British pound.