The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was experiencing mixed trading over the weekend and softened on Monday as traders took up positions ahead of Tuesday’s Reserve Bank of Australia (RBA) policy meeting.
The Pound Sterling to Australian Dollar exchange rate hit a session low of 1.925
Soft manufacturing data out of China was not enough to weaken the ‘Aussie’, which took advantage of the softened US Dollar. The report released by HSBC/Markit showed that activity in China’s factory sector shrank for a second consecutive month in January.
The final PMI index came in at 49.7 for January, below the 50 level, which divides expansion from contraction. Economists had been forecasting for a reading of 49.8. As China is Australia’s largest trading partner this data would normally soften the ‘Aussie’, however it failed to do so today as economists are divided as to whether the RBA will cut interest rates at tomorrow’s policy meeting.
Traders Torn on RBA Meeting
Some economists are forecasting that the RBA will have to announce interest rate cuts if it wants to prevent the Australian Dollar from surging higher and back up to levels seen last year, which was deemed, as uncompetitive.
Other economists, however, are predicting that the RBA will leave rates on hold this year before lifting rates in the early part of 2016.
Both sides are expecting that the board’s language around interest rates, inflation, unemployment, low commodity prices and the global outlook will contain important amendments.
‘Should the RBA not signal a shift to an easing bias at the February meeting, a confidence sapping appreciation in the Australian Dollar could easily result. While we believe the probability of an easing in the cash rate in February is relatively high, we believe the RBA’s preferred strategy will be to shift to an easing bias at the February meeting and deliver a 25 basis point rate cut at the March meeting,’ said Goldman Sachs chief economist for Australia Tim Toohey.
BoE in Focus
The Pound meanwhile was softer against many of its most traded peers on Monday as economists looked ahead to Thursday’s Bank of England policy meeting. The currency could advance and regain ground however if Purchasing Managers Index (PMI) data comes in positively. Manufacturing, Construction and Services PMIs are all due ahead of the BoE announcement.
