Short-term interest rate markets are expecting the RBA to hike interest rates next Tuesday by 25bps. This is to counter the surge in Australian inflation. These expectations may lead to some AUD strength ahead of the RBA meeting.

The BoE is in a different phase as it has already been rising interest rates to contain surging inflation. However, the BoE will start to be concerned that growth is starting to slow. In particular, the last UK retail sales print saw a big miss and that will be a worry for BoE policymakers. It may mean the BoE is more cautious about rising interest rates when it meets on Thursday. Furthermore, the UK’s exposure to Russian/Ukraine risk has been weighing on the point.

This should mean the GBPAUD finds weakness ahead of the RBA and BoE meeting this week. Expect GBPAUD sellers and risk can be managed carefully against this trendline here. See the chart.

Major Trade Risks: The major risk here is if there are further lockdowns in China due to COVID-19. That could weigh on the AUD and allow the GBPAUD to rise.