GBP/AUD Interest Rate Differential and Directional Bias (May–June 2025)
Interest Rate Differential
Bank of England (BoE):
Policy rate: 4.25% (cut from 4.5% in May 2025).
Outlook: Further cuts likely, but pace depends on inflation (currently 2.6% YoY) and growth (Q1 GDP: 0.6% QoQ). Markets expect 1–2 more cuts in 2025, potentially lowering rates to 4.0% by year-end.
Reserve Bank of Australia (RBA):
Policy rate: 3.85% (cut by 25 bps on May 20, 2025).
Outlook: Two additional cuts expected in 2025 (to 3.35%) due to subdued core inflation (2.9% in Q1) and global trade risks.
Differential: +0.40% in favor of GBP, narrowing as RBA cuts outpace BoE easing.
Key Economic Data and Drivers
United Kingdom
GDP Growth: Q1 2025 growth outperformed expectations at 0.6% QoQ, though manufacturing and industrial production lagged.
Inflation: March CPI fell to 2.6%, but energy-driven price pressures may push it to 3.5% in Q3 2025.
Australia
Employment: April jobs data showed 20.9K jobs added (vs. 32.2K expected), with unemployment steady at 4.1%.
Trade Risks: U.S.-China tariff ceasefire reduces immediate pressure, but export reliance on China leaves AUD vulnerable.
Directional Bias
Short-Term (Days–Weeks): Bearish GBPAUD
RBA Aggression: Immediate post-cut AUD weakness expected, but faster RBA easing vs. BoE could narrow the rate gap.
Growth Divergence: UK’s stronger GDP vs. Australia’s reliance on China may support GBP.
Long-Term (6+ Months): Bullish GBPAUD
Rate Differential Stability: BoE’s slower cuts vs. RBA’s aggressive easing may widen the gap, favoring GBP.
Commodity Risks: AUD remains exposed to China’s economic slowdown and iron ore price volatility.
Summary Table
Time Frame Bias Key Drivers Technical Levels
Short-Term Bearish RBA cuts, technical breakdown 2.0565 (S), 2.0732 (R)
Medium-Term Neutral/Bullish UK growth resilience, channel support 2.0490–2.0720 (Channel)
Long-Term Bullish Diverging central bank policies, AUD risks 2.1000+ (Target)
Critical Factors to Monitor
BoE Communications: Signals on future cuts (next meeting: June 19, 2025).
RBA Policy: Additional cuts in 2025 (next decision: June 3).
UK Inflation (May 29): Core PCE data critical for BoE’s path.
Conclusion:
GBP/AUD faces near-term bearish pressure from RBA cuts and technical breakdowns, but medium-to-long-term trends favor GBP due to slower BoE easing and UK growth resilience. Watch for shifts in central bank rhetoric and key technical levels for directional confirmation.
Interest Rate Differential
Bank of England (BoE):
Policy rate: 4.25% (cut from 4.5% in May 2025).
Outlook: Further cuts likely, but pace depends on inflation (currently 2.6% YoY) and growth (Q1 GDP: 0.6% QoQ). Markets expect 1–2 more cuts in 2025, potentially lowering rates to 4.0% by year-end.
Reserve Bank of Australia (RBA):
Policy rate: 3.85% (cut by 25 bps on May 20, 2025).
Outlook: Two additional cuts expected in 2025 (to 3.35%) due to subdued core inflation (2.9% in Q1) and global trade risks.
Differential: +0.40% in favor of GBP, narrowing as RBA cuts outpace BoE easing.
Key Economic Data and Drivers
United Kingdom
GDP Growth: Q1 2025 growth outperformed expectations at 0.6% QoQ, though manufacturing and industrial production lagged.
Inflation: March CPI fell to 2.6%, but energy-driven price pressures may push it to 3.5% in Q3 2025.
Australia
Employment: April jobs data showed 20.9K jobs added (vs. 32.2K expected), with unemployment steady at 4.1%.
Trade Risks: U.S.-China tariff ceasefire reduces immediate pressure, but export reliance on China leaves AUD vulnerable.
Directional Bias
Short-Term (Days–Weeks): Bearish GBPAUD
RBA Aggression: Immediate post-cut AUD weakness expected, but faster RBA easing vs. BoE could narrow the rate gap.
Growth Divergence: UK’s stronger GDP vs. Australia’s reliance on China may support GBP.
Long-Term (6+ Months): Bullish GBPAUD
Rate Differential Stability: BoE’s slower cuts vs. RBA’s aggressive easing may widen the gap, favoring GBP.
Commodity Risks: AUD remains exposed to China’s economic slowdown and iron ore price volatility.
Summary Table
Time Frame Bias Key Drivers Technical Levels
Short-Term Bearish RBA cuts, technical breakdown 2.0565 (S), 2.0732 (R)
Medium-Term Neutral/Bullish UK growth resilience, channel support 2.0490–2.0720 (Channel)
Long-Term Bullish Diverging central bank policies, AUD risks 2.1000+ (Target)
Critical Factors to Monitor
BoE Communications: Signals on future cuts (next meeting: June 19, 2025).
RBA Policy: Additional cuts in 2025 (next decision: June 3).
UK Inflation (May 29): Core PCE data critical for BoE’s path.
Conclusion:
GBP/AUD faces near-term bearish pressure from RBA cuts and technical breakdowns, but medium-to-long-term trends favor GBP due to slower BoE easing and UK growth resilience. Watch for shifts in central bank rhetoric and key technical levels for directional confirmation.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.