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GBP/AUD rises to top of 1-week range, upside likely to be limited.
The Australian dollar fell across the board after inflation numbers for April undershot expectations and reduced the odds of an interest rate rise at the Reserve Bank of Australia (RBA).
The ABS said headline CPI increased by 0.4% m/m compared to the consensus estimate for 0.6% m/m. Australia's core inflation reading, referred to as the trimmed mean, met expectations at 0.3% m/m, although the March estimate was revised down from 0.3% to 0.2%, providing another 'dovish' signal.
With foreign exchange markets paying particular attention to the data's impact on central bank rate expectations, the AUD adjusted lower.
"AUD/USD dropped by around 30 pips after the release of the Australian CPI for April," says Joseph Capurso, FX strategist at Commonwealth Bank of Australia.
GBP/AUD rose to 1.8830 from the day's opening level of 1.8755.
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The currency reaction reflected the money market response which showed investors have lowered expectations for an August rate hike from 62% to 41%. There are now 20bp worth of hikes priced for 2026, down from 30bp ahead of the inflation release below the 40bp of hikes priced before last week's surprisingly soft jobs report.
"We consider the Reserve Bank has finished its tightening cycle though the market is pricing one more hike before year-end," says Capurso.
A further adjustment lower in market pricing would weigh on the AUD, all else equal.
GBP/AUD rises to 1.8830 in the wake of Aussie domestic developments, keeping it locked in the range it has occupied for the past week.
The exchange rate started the year at 2.0160 but has steadily fallen as AUD outperformed all G10 peers as traders adjusted to the three rate hikes delivered in H1.
The AUD could relinquish its outperformer status if the RBA hiking cycle is indeed complete, however a GBP/AUD comeback of any significance is not guaranteed, particularly if the Bank of England maintains interest rates or considers cutting them once more.
That's a scenario that could emerge later in the year as the Strait of Hormuz is reopened and energy prices decline, which would allow the Bank to lower interest rates.
For the GBP, that's a headwind and is why GBP/AUD is unlikely to reclaim 2.0 even if it is better supported from here.
Consensus projections for the next four quarters, compiled from leading investment banks.
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