CBA Weigh In On AUD/GBP

CBA note that “AUD/GBP has trended lower since reaching its cyclical high at just under GBP0.58 in early February. The turnaround in AUD/GBP coincided with the re‑strengthening in the USD, suggesting the USD has weighed on AUD more than GBP. Trading at around GBP0.56, AUD/GBP is currently close to fair value. But we believe AUD/GBP can fall further in the near term. First, China has set modest targets for economic growth and local government special bond issuance (a financing vehicle for infrastructure projects) for 2023. As such, AUD is likely to receive less support from commodity demand than we previously expected. Second, Australia‑UK interest rate differentials are likely to narrow weighing on AUD/GBP. After yesterday’s hike, we expect one final 25bp hike from the RBA. Meanwhile, the risk is the Bank of England will tighten more than 25bp in coming months.”