DBS: Pound-Australian Dollar Rate a Sell

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The Pound is a sell against the Australian Dollar say strategists at Asian banking giant DBS.

DBS's FX strategist, Philip Wee, initiates a sell on the Pound to Australian Dollar exchange rate saying it is becoming clear the Reserve Bank of England will cut rates many months behind the Reserve Bank of Australia (RBA).

The Australian Dollar was broadly lower after the RBA said earlier this week that it is unlikely to raise interest rates again, disappointing some corners of the market that had become increasingly expectant of further increases.

But weakness in AUD could be relatively short-lived as "the Statement of Monetary Policy (SMP) implied that the RBA is not considering lowering rates this year," says Wee.

The revised forecasts depicted sticky inflation and an economic growth recovery after a slowdown in the first half of this year.

The RBA predicts inflation will rise to 3.8% in June from 3.5% in March before resuming its decline, returning into the 2-3% target band only by the end of 2025 and the mid-point of the range in 2026.

The Pound is meanwhile attached to a very different central bank that will likely soon cut rates.

"BOE Governor Andrew Bailey and Deputy Governor Dave Ramsden have become more confident about falling inflation," says Wee, "Bailey opened the door for a rate cut this year."

With the Bank of England likely to lower rates before the RBA this year, "GBP/AUD has scope to keep depreciating despite falling from a high of 1.9480 to 1.8975. The last low was around 1.86 at the end of 2023," says Wee.