AUD GBP Looks to Central Banks After Rebound

GBP AUD Lower as Australia Delays Border Reopening

The AUD GBP exchange rate has Reserve Bank and Bank of England interest rate meetings this week after the pair mounted a recent rebound. The market is expecting a 0.15% rate hike from the BoE, while there is also an expectation that the RBA is no longer defending the 0.1% level after moves in the bond market last week. A report from Domain also highlighted frothy prices in the Australian property market and both countries have seen a potential peak in prices as rate hike talk increases.

The AUD GBP exchange rate is trading at 0.5489 as the week begins.

Australian reserve bank interest rate meeting on Monday

The RBA will have its interest rate meeting on Monday, with the bank releasing a monetary report on Thursday.

Last week saw some drama in the 2-yr yield market after the bank failed to buy the bonds last week. The bank had been defending the 2-yr bond level at 0.1% and the failure to repeat that saw expectations they will ditch their yield curve control. Prices for the bonds soared on expectations of rate rises after recent inflation.

Thursday will also see the Bank of England meeting with markets expecting a 0.15% hike from the BoE. Both the bank and the OBR have warned of inflation above 5% in 2022, but the latter warned that a failure to act on rates could see prices rise to 8.5%.

But analysts at ING said: “With a 15bp hike now fully-priced for the 4 November BoE meeting, we suspect that any concern over voting patterns plus some mild rate protest from the BoE through its 2-3 year CPI forecast could prompt a modest correction in GBP.”

Sydney house prices are not ready for higher rates

Sydney house prices have surged by A$956 a day to A$1.5million – with monthly mortgage repayments approaching A$5,000.

The problem for the property market is that the Reserve Bank telegraphed rates staying at record lows into 2024. That gave buyers a green light to snap up homes, but they may be forced to raise rates faster.

Over the past year, Sydney prices were higher by 30% as working from home pushed up the prices of houses over apartments.

Westpac bank is now expecting the Reserve Bank of Australia to raise interest rates in February 2023. With the banks still offering fixed mortgages at 2 per cent, Domain chief of research Dr Nicola Powell said buyers had a fear of missing out.

“Customers are borrowing more to keep up with rising prices and further driving house price growth,” she said.

But Dr Powell also anticipated a slowdown in the strong growth as new lending rules come into effect from next week.

“This may start to slow down as new serviceability measures are implemented from 1 November,” she said.

The UK also saw prices cooling this month as stamp duty holidays ended and the market may also suffer from rates over the coming months.

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