GBP AUD Surges After RBA Hikes Rates Again 

The GBP AUD exchange rate was higher by 1.0% on Tuesday after the Reserve Bank of Australia hiked by another 0.50%. The move took Australian interest rates to 1.85%, higher than the 1.25% in the UK. The BoE will have a turn on Thursday, but a maximum of 1.75% is expected. 

The GBP to AUD hovered at 1.7600,  following a strong 200 pip move on the day. 

‘Reverse Bank’ of Australia hikes rates for a fourth-straight month

The Reserve Bank of Australia has earned the nickname ‘Reverse Bank’ after policymakers hiked interest rates for a fourth-straight month on Tuesday. 

The RBA hiked its cash rate to 1.85% at the latest meeting and completed a 1.75% interest rate move for a bank that said rates would move in 2024, ‘at the earliest’. The bank is trying to cool rising inflation, but they could also put the brakes on the country’s economy. 

“Today’s increase in interest rates is a further step in the normalisation of monetary conditions in Australia,” RBA Governor Philip Lowe said. “The increase in interest rates over recent months has been required to bring inflation back to the 2% to 3% target and to create a more sustainable balance of demand and supply”.  

However, there was harsh criticism again for the bank, with a former RBA research manager saying that “part-time amateurs” are making the calls. 

Peter Tulip, the RBA’s senior research manager from 2011 to 2020, said that the monetary policy decisions of other central banks were made by the top talent of the economics profession, adding that the country’s decisions were made by “part-time amateurs”. 

His comments suggested that some board members lacked the expertise to challenge senior officials on the decisions taken over interest rates. 

Nationwide house prices add to the pound sterling strength

The pound sterling was further boosted by Nationwide data showing house prices were up by 11% year-on-year in July. 

The latest numbers were up from 10.7% annually in June, and there is no sign of a slowdown in prices despite rising interest rates and other price squeezes. 

The data did show that mortgage activity is 20% lower than at the time of the stamp duty holiday, but the average price of a UK home has risen to £271,000. 

Robert Gardner, the chief economist at Nationwide, said the housing market had “retained a surprising degree of momentum” in light of the cost-of-living squeeze. 

He noted that while early signs of a slowdown in activity signalled by a decrease in the number of mortgage approvals for house purchases in June, this has not yet fed through to price growth.  

Gardner added that the resilient jobs market and a limited housing stock had added upward pressure to housing prices. The figures helped to boost the pound sterling and have increased the chances that sterling has bottomed against the Aussie dollar. Attention now turns to Thursday and the latest Bank of England rate meeting. 

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