The Pound to Australian Dollar exchange rate (GBP/AUD) declined by around a third of a cent to 1.7180 earlier this morning in response the latest Minutes report from the Reserve Bank of Australia.
The RBA noted that business investment has increased considerably over the last two months and mentioned that the Australian Dollar has weakened slightly from levels seen earlier this year, and subsequently is having a less concerted negative impact on export growth.
Although the report struck a neutral tone for the most part, there were some signs of concern among policymakers. The RBA said that the major stimulus measures – 225 basis points of rate cuts – that it has imparted over the past two years are still working their way through the real economy and suggested that economic growth could accelerate more meaningfully in a years time:
“It appeared likely that growth of the economy over the coming year would be below trend but that growth could reasonably be expected to pick up thereafter”.
The RBA maintained the view that the “uncomfortably high” value of the Australian Dollar was constricting economic output, stating: “a lower level of the exchange rate would likely be needed to achieve balanced growth in the economy”.
Ultimately the RBA decided not to modify monetary policy, but the Australian Central Bank did state that further rate cuts could be introduced in the future if domestic GDP growth remains muted.
The Reserve Bank’s reluctance to reduce interest rates further is contentious among Australian business owners who would like to see a weaker currency to boost exports, however, policymakers seem comfortable to take a wait-and-see approach and this is likely to be considered bullish for the ‘Aussie’ Dollar.
Later in the week the Bank of England Minutes report could boost Sterling if it features a positive attitude among policymakers towards the UK economy. Last week the BoE’s Quarterly Inflation report saw the Bank bring forward its forecasts for an interest rate hike and this helped GBP/AUD reach a 6-week high of 1.7302.
If the Minutes report strikes a hawkish tone then the Pound could rally against the ‘Aussie’, however, in light of the Quarterly Inflation report, there is unlikely to be a great deal of fresh information and this could mute Sterling’s gains.
Another important data release for the pair will be China’s Manufacturing PMI report for November. If factory output comes in at 50.8 as expected then GBP/AUD should remain fairly stable, however, if the PMI prints above consensus then the ‘Aussie’ could put in a strong performance.
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