GBP/AUD had a rough start to the Wednesday after falling over a cent from a peak of 1.7650 to the 1.7540s, due to Australian Dollar strength due to a positive market response to the Federal Budget.

The budget included a popular levy on banks to fund welfare programmes and a substantial infrastructure spending package.

Fears that the increased amount of government borrowing required to fund theses policies could endanger Australia’s AAA credit rating appeared to be dismissed by market participants who bought the Aussie Dollar in droves following the news.

The Pound, which had been in a strong uptrend versus the Aussie, pulled back from its peak and declined substantially during the day as sterling traders stood aside and ‘kept their powder dry’ ahead of a key meeting of the Bank of England (BOE) which includes an inflation report on Thursday.

This was in line with our week ahead forecasts published at the start of the week.

Sterling traders are not expected to re-enter the market in numbers until they have the BOE’s forecasts and minutes from the meeting in on Thursday afternoon.

The strength in the Australian Dollar may be short-lived as recent data has been less than exemplary.

Retail Sales shrank by -0.1% in March, for example, revealing a trend towards consumers cutting the cloth.

“The annual rate of retailing values stands near levels not seen since 2013 when the RBA was in the midst of a rate-cutting cycle,” said St George Economics an advisory service linked to Aussie lender Westpac.

St George did not think the Reserve Bank of Australia (RBA) would start cutting interest rates again, however, due to the risk of further inflating rising household debt levels by encouraging more cheap lending.

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