Image © Newtown Grafitti, Reproduced under CC Licensing.
The Australian dollar was boosted by some spicy inflation data.
The pound to Australian dollar exchange rate (GBP/AUD) is dropping fast, and the 2.0% line is rapidly coming into view.
The decline rests primarily with a broad selloff in pound sterling, linked to falling bond yields amidst expectations that the UK government will squeeze the life out of the domestic economy at next month's budget.
However, fresh impetus comes from a big move on the Aussie's side of the GBP/AUD conversion:
The Australian Dollar rose across the board after Australia's third quarter 2025 CPI indicator surprised to the upside after putting in a 1.0% quarterly gain.
This is well above consensus expectations of 0.8% q/q and the Reserve Bank of Australia's (RBA) forecast of 0.6% q/q.
The implications are clear: the RBA will have to think very carefully about cutting interest rates further, for fear of becoming complicit in boosting domestic inflation.
With money markets 'pricing out' further rate cuts, short-term Aussie bond yields find support, which in turn drags the Aussie dollar higher.
Economists at Commonwealth Bank of Australia now expect the RBA to remain on hold from here, having previously expected one last rate cut in February 2026.
"AUD/USD could trade modestly above 0.6650 over the next few days and even touch its year‑to‑date high of 0.6707, particularly if there is a breakthrough US‑China agreement that supports risk appetite," says a currency strategy note from Commonwealth Bank of Australia in the wake of the inflation release.
If AUD/USD pushes higher, other AUD exchange rates are liable to follow, promising to keep GBP/AUD under the hammer.
"We enter a new long AUD/USD trade," said strategists at global investment bank Nomura, on Tuesday.
"We think AUD looks cheap relative to a range of cross-market indicators," they say.