"Members agreed to reconsider the case for a pause at the following meeting, recognising that pausing would allow additional time to reassess the outlook for the economy" - RBA.

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The Pound to Australian Dollar exchange rate's recent rally has been helped by greatly improved bond yield differentials that could be likely to continue supporting the currency pair in the weeks and months ahead.

Australian government bond yields have reached their highest levels for more than a decade this year following no less than 10 increases in the Reserve Bank of Australia (RBA) cash rate over just as many months, although borrowing costs have risen further elsewhere including in the UK. 

This has lifted the GB-AU bond yield differential above 0% at the 02-year and 10-year intervals, and to the highest levels since shortly after the turn of the millennium if the brief period in late September last year is overlooked. 

"In light of inflation being too high and forecast to remain above target for two years, members agreed that a further tightening of monetary policy was warranted at the current meeting," the RBA said on Tuesday.

"Turning to the outlook for interest rates, members observed that further tightening of monetary policy would likely be required to ensure that inflation returns to target and that the current period of high inflation is only temporary,"minutes of the March monetary policy meeting also state.

Above: Pound to Australian Dollar rate shown at weekly intervals alongside spread or gap between 02-year and 10-year British and Australian government bond yields. 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.)

Government yield differentials are not always the most prominent influence on exchange rates and sometimes the behaviour of the two can differ markedly but when considered together across medium or longer-term stretches of time, the correlation is almost always positive with advanced economy currency pairs.

This might matter greatly to the medium and longer-term prospects of GBP/AUD if recent interest rate trends and differentials are sustained.

"Members also noted that the policy rate in Australia was below that in several other countries; while a number of factors might account for this, members were conscious of the effect of this difference on financial prices, including the exchange rate," the RBA said on Tuesday.

Minutes of the RBA's March monetary policy meeting suggested this week that the recent trend in the GB-AU interest rate differential will likely be sustained for at least the coming months when noting clearly that policymakers expect to reconsider the case for a pause in the cash rate cycle at the April meeting.

"Members noted that monetary policy was in restrictive territory and that the economic outlook was uncertain. These considerations meant that it would be appropriate at some point to hold the cash rate steady," the March monetary policy meeting record states. 

"Members agreed to reconsider the case for a pause at the following meeting, recognising that pausing would allow additional time to reassess the outlook for the economy," the record adds in a partial conclusion.

Above: Pound to Australian Dollar rate shown at monthly intervals alongside spread or gap between 02-year and 10-year British and Australian government bond yields. Click image for closer inspection. To optimise the timing of international payments you could consider setting a free FX rate alert here.

The RBA raised its cash rate to 3.6% in March and warned that further increases are likely to be necessary up ahead but also indicated clearly that these might not come until after the bank has had time to observe the effect that its earlier policy actions are having on the Australian economy. 

Tuesday's record also noted that recent economic data "had confirmed the expected slowing in activity in the December quarter and into early 2023," but that "key economic themes were largely unchanged," with a strong labour market and increased levels of wage growth persisting. 

All of this comes with the Bank of England (BoE) Bank Rate sitting at 4% ahead of Thursday's policy decision which is also widely seen as a toss-up between another increase to 4.25% or a decision to leave benchmark borrowing costs unchanged for the first time since November 2021.

Interest rate and bond yield differentials would still likely remain in Sterling's favour whatever the outcome at the BoE on Thursday and whatever the outcome at the RBA in April, which might mean the Pound to Australian Dollar rate is set to remain buoyant over the coming weeks, if not the coming months. 

Australia's Dollar rose against the New Zealand Dollar on Tuesday but otherwise lagged behind major currency counterparts including the Pound.