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The Australian dollar is forecast to continue outperforming the pound by analysts at Rabobank.
The Netherlands-based international merchant and investment bank says the Aussie dollar will extend its outperformance thanks to a solid domestic labour market and the prospect of another interest rate hike at the Reserve Bank of Australia (RBA).
"The relatively hawkish position of the RBA is keeping the AUD well supported," says Rabobank's senior FX strategist, Jane Foley, in a note out midweek. Forecasts contained in this research confirmed there's a great deal more room for GBP/AUD to extend lower.
The Australian dollar is 2026's best-performing currency with gains being prompted by a strong domestic economy and a tight labour market that keeps wages and demand elevated. That stokes domestically generated inflation which, in turn, prompts the RBA to lean towards higher interest rates.
"The market remains fully priced for another 25 bp RBA rate hike on a three-month view, encouraged by another round of firm Australian labour data," says Jane Foley, Senior FX Strategist at Rabobank. "The AUD remains the best performing G10 currency in the year to date."
In fact, Australia offers the highest real interest rates in the G10, which is a great attraction for international investors who buy Aussie monetary products for their superior return. That drives demand for the Australian dollar.
The war in the Middle East will cool some of the demand, but for FX markets, it's always a question of relativity: after all, most countries will experience similar hits, or even more severe hits to demand and confidence from the war.
With Australia entering the crisis in better shape than most, it's not hard to see AUD's relative advantage staying intact.
This week's Australian labour data showed the economy added 52.5K full-time jobs in March, which was interpreted as a bullish outturn for the currency and economic outlook.
"This provides evidence of a robust labour market which carries with it more risks related to sticky inflation potential," says Foley.
The RBA's Deputy Governor, Andrew Hauser, said twice this week that the conditions for another rate hike were in place, ensuring markets stayed fully on board for a rate hike at the RBA's next outing in May.
With other central banks set to stay on hold, including the Bank of England on April 30, monetary policy and interest rate divergence remains in favour of AUD.
"For now, the relatively hawkish position of the RBA is keeping the AUD well supported," says Foley.
Rabobank forecasts the GBP/AUD exchange rate at 1.83 in nine months, a level that is tipped to be the bottom of the cycle.
From here, that implies at least another 500 pips of downside.