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GBP/AUD - The Hawk Sharpens its Claws

This morning the currency pair saw a drop of over 172 PIPs within only 2 hours following the announcement of the Reserve Bank of Australia (RBA). With such high volatility, we may be seeing a price rebound on the price charts, which could be triggered by traders cashing in after such a big price movement. This wouldn't come as a surprise. Currently, the price movement is 0.50% lower than the price open but remains higher than the weekly open (1.7299).

GBPAUD - The Hawk Sharpens its Claws_chart-1.jpg

Yesterday, the price movement was strongly influenced by the Pound which increased in value against all major competitors including the Euro, USD and Yen. The Pound was supported by the opening of the financial market after 2 bank holidays and by the political picture, which we will look at in more detail. However, today the AUD rallied against the base currency, bringing the GBP/AUD pair down in the charts.

RBA Takes the Wheel

Over the past week, the market had been expecting a rate hike after multiple indications from the RBA. Predictions from economists have varied with regards to how large the hike was likely to be, with estimates in the region of 0.25% to 0.40%. However, the Reserve Bank of Australia confirmed this morning the cash rate will increase to 0.85%. This is equivalent to a 50 basis point hike and much higher than predicted by the market.

It is for this reason that the Australian Dollar had seen such a strong spike early this morning. Higher interest rates have the ability to increase demand from market participants and illustrate a picture of stability as well as willingness to tackle inflation risks.

Australia’s inflation rate has recently surged to a 10-year-high of 5.1% in the first quarter of 2022, surpassing the market’s estimates of 4.6%. The highest increase in prices was seen in the transport sector which rose the most since the 1990 Iraqi invasion of Kuwait. It should also be noted that the national unemployment rate has declined to the lowest in its history which has also given the Central Bank further backing to increase interest rates and attempt to bring inflation down. Both the inflation and employment figures seem to support the Australian Dollar.

UK PM Wins by the Skin of his Teeth

This week the UK is not scheduled to release any major economic statistics, leaving the market to focus mainly on the political picture. Pound Sterling saw an increase in value yesterday, after it was predicted that Prime Minister Boris Johnson would remain at number 10 Downing Street.

Boris Johnson won 59% of the vote, meaning he is now safe from further Conservative leadership challenges for at least one year. In all, 211 Tory MPs voted they had confidence in the PM's leadership while 148 voted against him. The votes in favor of the Prime Minister were actually much lower than predicted.

The price movement of the Pound today is correcting against most currencies and has almost lost all of yesterday’s gains. In the GBP/USD pair, the price of the exchange remains negative and the price is attempting to cross into a lower wave. The price of the exchange is also close to a support level which has been tested on three occasions since May 4th. The more the level is tested, the more confidence the market potential is of the price being broken. This could be something that the market will be monitoring in the coming 48 hours.

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