GBP/AUD A Sell on Rallies Says Rabobank

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Pound-Australian dollar has had a strong month, but it's still a sell says a leading currency analyst.

The Australian dollar is still the best-performing G10 currency of 2026, but recent days have seen the currency lose ground against the pound and a host of other currencies.

In fact, when screened on a one-month and one-week view, it consistently ranks amongst the stragglers.

Analyst Jane Foley at Rabobank explains that much of this recent softness is down to other currencies playing catch-up as the war in the Middle East drastically resets inflation and interest rate expectations outside of Australia.

"The adjustment in money market rates for several other G10 countries in recent weeks has been more marked," says Foley.

AUD started 2026 on a tear, driven by rising expectations that the Reserve Bank of Australia (RBA) would raise interest rates ahead of its peers. That rate advantage proved a powerful driver of AUD outperformance.

The RBA is now already two interest rate hikes deep into the cycle, and there was always going to be less scope for expectations to build much further: raise interest rates too much and the RBA risks killing the economy stone dead.

By contrast, the Bank of England entered the Middle East crisis with two rate cuts baked into the price. There are now two hikes expected, making for a massive 100 basis point hawkish swing.

That's helped the pound-Australian dollar rate recover from 1.88 to 1.94 through the course of March.

However, in Rabobank's view, the market’s current projections of between two and three Bank of England rate hikes on a 1-year view are excessive given the relatively soft position of UK growth at the start of this crisis.

"In the past couple of weeks GBP/AUD has turned higher. We would favour selling GBP/AUD into rallies targeting a move back below GBP/AUD1.90 in the weeks ahead," says Foley.

The OECD warned this week that the UK is set to be hit hardest by the effects of the Middle East war amongst the G20 economies.

The organisation downgraded the 2026 growth forecast to 0.7% from a previous estimate of 1.2% and upgraded inflation forecasts, saying headline CPI will rise to 4% later this year.

"The UK is now on track for one of the highest inflation rates in the G7 this year, according to the latest OECD forecasts, threatening input costs for retailers as energy and transport costs rise," says Phil Monkhouse, UK Country Manager at Ebury. "Consumer confidence is also likely to remain subdued, as rising mortgage rates, higher borrowing costs and renewed inflation concerns linked to the Iran conflict all add up to a rocky outlook for consumer spending."

For GBP, stagflation is rarely a helpful backdrop.