Although investors with an interest in the Pound were preoccupied ahead of the release of the UK’s Consumer Price Index, the Pound to Australian Dollar (GBP/AUD) exchange rate advanced by 0.2% overnight.
The ‘Aussie’ softened against several of its major currency counterparts after the Reserve Bank of Australia published minutes from its latest policy meeting.
As economists expected, the minutes stressed that the central bank intends to keep interest rates low for a prolonged period in order to bolster the domestic economy.
Over the last few months Australia has released several mixed economic reports, including the recent (and surprising) employment figures. Last week’s jobs data showed an unexpected increase in the level of joblessness in the nation, adding to concerns that Australia’s economic outlook isn’t as bright as that of the UK, US or neighbouring New Zealand.
Consequently, the RBA believes that a period of price stability is required to keep Australia on an even keel.
The minutes stated; ‘In Australia, GDP growth was above trend in the March quarter and over the past year, reflecting very strong growth in resource exports from new capacity coming on line. Resource exports were expected to continue to expand in coming quarters, but not at such a rapid pace […] After picking up through last year, household consumption growth appeared to have eased, while non-mining business investment was picking up gradually.Conditions in the labour market had improved a little since earlier in the year, although forward-looking indicators had been mixed of late and consistent with only moderate growth in employment. The national accounts data confirmed that wage growth had been relatively low, which was consistent with the spare capacity in the labour market.’
It was therefore added that it was ‘prudent to leave the cash rate unchanged’ as a prolonged period of low interest rates would ‘support demand’.
Given the very decided comments issued by RBA Governor Glenn Stevens earlier this month regarding the overvalued nature of the Australian Dollar exchange rate, some investors had expected the minutes to contain an equally damning rhetoric. In actuality however the remarks made during the July meeting were no different to those made in June.
The minutes stated; ‘The exchange rate remained high by historical standards, particularly given the declines in key commodity prices, and was therefore offering less assistance than it otherwise might in achieving balanced growth in the economy.’
Declines in the Pound to Australian Dollar (GBP/AUD) exchange rate were a little tempered as an Australian report showed that New Motor Vehicle Sales were up 1.7% in June, month-on-month, following a positively revised increase of 0.4% in May.
Reports published in china also showed that the nation’s broadest gauge of new credit came in above forecast levels in June. This result was indicative of the Chinese government’s attempts to shore up the domestic economy.
During the European session, the UK’s Consumer Price Index showed that inflation came in at 1.9% in June year-on-year after climbing 0.2% on the month. Economists had expected a monthly decline of -0.1% and an annual increase of 1.5%.
As this report shows inflation heading closer to the Bank of England’s 2% target, and indicates that the UK’s economy is stable enough to withstand an increase in borrowing costs, the Pound could extend gains against the ‘Aussie’ in the hours ahead.
Later today several Bank of England policy makers, including Governor Mark Carney, are due to be questioned by lawmakers. If Carney references the prospect of an interest rate increase occurring this side of Christmas the Pound could climb. Conversely, any hints of a delay in the raising of borrowing costs could push the British asset lower.
Overnight a stream of influential Chinese reports are likely to be responsible for volatility in the Pound to Australian Dollar (GBP/AUD) exchange rate.
Australian Dollar (AUD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Australian Dollar,
,US Dollar, 0.9367,
Australian Dollar,,Euro, 0.6877,
Australian Dollar,,Pound, 0.5488,
Australian Dollar,,New Zealand Dollar, 1.0649,
US Dollar,,Australian Dollar, 1.0676,
Euro,,Australian Dollar, 1.4535,
Pound Sterling,,Australian Dollar, 1.8216,
New Zealand Dollar,,Australian Dollar, 0.9379,
[/table]
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