21.04.202615:32 Forex Analysis & Reviews: GBP/AUD: reversal amid dovish BoE and hawkish RBA

See also: InstaForex trading indicators for GBP/AUD

Despite a correction on Tuesday, the GBP/AUD cross remains under seller pressure, developing a downward impulse after the release of mixed UK labor data. At the time of writing quotes consolidate near 1.8870, retreating from recent highs around 1.8941. Market participants digest opposing signals: The Bank of England's dovish turn weighs on the pound, while the RBA's hawkish rhetoric and Australia's resilient economy support the aussie.

Fundamental background: dovish BoE versus hawkish RBA

The pound took a double hit this week. On the one hand, today's labor data surprised: the ILO-method unemployment rate unexpectedly fell to 4.9% (the forecast stood at 5.2%).

However, beneath the surface troubling signals emerge:

- Job creation amounted to only 25,000 versus 84,000 previously.

- Redundancies rose by 136,000 in the three months to February.

- HMRC payrolls fell by 11,000 employees.

A key focus for the Bank of England became slowing wage growth. Regular private sector pay, the metric that matters for policy, slowed to 3.2% year on year (from 3.3% in January). That represents the slowest wage growth since October 2020 and stands below the BoE's Q1 projection of 3.5%.

Market reaction:

- Markets began to shift from pricing in rate rises to pricing in rate cuts.

- Economists note that despite stronger headline prints, the UK labor market still shows excess capacity and remains vulnerable: despite the much better unemployment reading, hidden weakness persists.

Tomorrow's focus is on the UK CPI data for March.

Forecast:

If the data confirms an acceleration in inflation, that may temporarily support the pound. Economists, however, expect the general trend of shifting expectations from hikes to cuts to persist (see also our yesterday's reviews GBP/USD: pound balances on knife-edge between rates and geopolitics and GBP/CAD: amid diverging monetary paths).

While the pound loses its hawkish premium, the Australian dollar receives strong support from rising expectations of RBA tightening.

Key support factors for AUD:

- Strong labor market. Unemployment in March held at 4.3%, matching RBA forecasts, and employment rose by 18.0k. Full-time positions increased by 53.0k.

- Inflation expectations. Consumer inflation expectations in April rose to 5.9% — the highest since November 2022.

- Wage growth. RBA Deputy Governor Andrew Hauser confirmed the central bank focuses on preventing a rise in medium-term inflation expectations.

Market pricing:

- The probability of a rate hike at the RBA's May meeting stands around 70%.

- Markets fully price at least one 25-bp hike by year-end; some economists do not rule out a third hike if inflationary effects from the Iran conflict intensify further.

Key events

Conclusion

GBP/AUD stands at a crossroads, facing opposing central bank signals: the BoE hints at a pause and possible rate cuts as the labour market softens, while the RBA retains a hawkish bias and prepares for further tightening.

Investors also watch developments in the Middle East closely. The second round of US-Iran talks may occur this evening or tomorrow morning. However, Iran has not yet confirmed participation, and its chief negotiator said they prepare to "reveal new cards on the battlefield." That uncertainty exerts pressure on risk assets and shows up in GBP/AUD dynamics, as the market exhibits risk-off sentiment that strengthens the US dollar and weighs on risk sensitive currencies.

The key zone 1.8800–1.8940 will become the battleground in coming days. A technical breakout above 1.8941 (200-EMA on the H1 chart) would confirm a bullish scenario and open the way to 1.9000 and 1.9057 (200-EMA on the H4 chart)–1.9125 (50-EMA on the daily chart). Holding below 1.8800, by contrast, will keep bears in control and open the road to test yearly lows.

Markets have priced in an overly aggressive RBA tightening scenario (May hike probability ~70%), and any hint of rhetoric change could trigger a sharp bounce in the pair. Conversely, tomorrow's UK CPI will provide a crucial test for the pound: an upside surprise could temporarily support GBP and alter the balance of forces. Investors should monitor geopolitical developments and tomorrow's UK inflation prints closely.

See also today's review DJIA (INDU): consolidation ahead of second round of talks