"The Board expects to increase interest rates further over the period ahead, but it is not on a pre-set course. It is closely monitoring the global economy, household spending and wage and price-setting behaviour" - Reserve Bank of Australia.

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The Pound to Australian Dollar exchange rate has reversed two thirds of a steep 2022 decline during its recovery from September's multi-year lows but a buoyant antipodean currency and technical resistance on the charts has stalled the rebound near 1.82 amid mounting uncertainty about the outlook.

Australia's Dollar rose against all other major counterparts on Thursday in an outperformance that helped partially reverse losses sustained earlier in the week with the latest gains coming against a backdrop of falling U.S. exchange rates and a mixed performance from stock and commodity markets.

Thursday's climb in AUD/USD helped pull GBP/AUD further away from nine month highs notched in the wake of Tuesday's Reserve Bank of Australia (RBA) interest rate decision and came hard on the heels of a third quarter GDP number that was softer than many economists anticipated.

However, the headline of Wednesday's GDP data may not have been the most important detail in the report.

"The main news in yesterday’s Q3 GDP report was the strength in inflation and wage indicators," says Felicity Emmett, an economist at ANZ.

Above: Pound to Australian Dollar rate shown at daily intervals with Fibonacci retracements of fall induced by Russia's invasion of Ukraine indicating possible areas of technical resistance for Sterling. Selected moving-averages denoted possible technical supports. Click image for closer inspection.

"The household consumption deflator accelerated to 2.0% q/q – the highest since the early 1990s. The RBA’s favoured measure of broader labour costs – non-farm compensation of employees per hour – rose 2.6% q/q," she adds.

While Australian economic growth slowed from 0.9% to 0.6% last quarter, further than was expected by consensus, Emmett and colleagues say the most important details in the GDP report were those warning that inflation pressures had continued to build during the three months to the end of September.

That kind of inflation development, if sustained for longer, could lead the RBA to raise its cash rate further than it and the markets currently expect.

"A further increase in inflation is expected over the months ahead, with inflation forecast to peak at around 8 per cent over the year to the December quarter. Inflation is then expected to decline next year due to the ongoing resolution of global supply-side problems, recent declines in some commodity prices and slower growth in demand," RBA Governor Philip Lowe said on Tuesday.

Above: AUD/USD at daily intervals alongside GBP/USD, S&P 500 index and Brent crude oil future. Click image for closer inspection. If you are looking to protect or boost your international payment budget you could consider securing today's rate for use in the future, or set an order for your ideal rate when it is achieved, more information can be found here.

"The Board expects to increase interest rates further over the period ahead, but it is not on a pre-set course. It is closely monitoring the global economy, household spending and wage and price-setting behaviour," the governor adds in partial conclusion of December's RBA policy statement.

While Governor Lowe said this week that further increases could yet take the cash rate above a newly-increased 3.1% level, he has also previously said that Australian borrowing costs might be most likely to cycle up and down between 2.5% and 3.5% in the years ahead.

That suggestion came in September testimony before Australia's House of Representatives Standing Committee on Economics and is a part of why interest rate derivatives markets have shifted since then to imply that investors now expect the RBA's cash rate to peak around 3.5% next year.

"We are committed to returning inflation to the two to three per cent target range. And we're seeking to do this in a way that keeps the economy on an even keel. I think it is possible to achieve this, but the path here is a narrow one and it's clouded in uncertainty," he said partial testimony.

Above: Pound to Australian Dollar rate shown at daily intervals with Fibonacci retracements of September recovery and selected moving-averages denoting possible technical supports for Sterling. Click image for closer inspection.

"I think it will be difficult for Australia to stay on the narrow path to a soft landing if there is further material bad news on the global economy. Another factor that will determine how successfully we navigate that narrow path is how inflation expectations and general inflation psychology evolve," he also added later.

Australian inflation and other economic data that leads to a steeper and more protracted uplift in the RBA's interest rate is a risk that could further stall or outright reverse the recent recovery in GBP/AUD during the months ahead, although other factors such as the condition of the global economy are upside risks for the Sterling-Aussie pair.

This is because Australia's economy and Dollar make a good living from commodities, prices of which tend to come under pressure during economic downturns like those playing out in many parts of the globe, although developments in and around the trade partner economy of China pose risks in both directions for AUD/USD and GBP/AUD.

"Policymakers are moving away from strict covid controls in favour of promoting economic growth. The removal of the zero covid policy is a prerequisite for a sustained improvement in Chinese economic activity," says Kim Mundy, a senior economist and currency strategist at Commonwealth Bank of Australia.

"We expect the gradual easing in covid restrictions will ultimately keep CNH on an uptrend. However, there is a risk of temporary bouts of CNH weakness if rising infections spark tighter restrictions and/or Chinese economic data is weaker than expected," Mundy writes in a Thursday market commentary.

Above: AUD/USD shown at daily intervals with Fibonacci retracements of October recovery indicating possible areas of technical support for Australian Dollar. Selected moving-averages denoted possible support and resistance. Click image for closer inspection. To optimise the timing of international payments you could consider setting a free FX rate alert here.