- Pound AUD Exchange Rate Breaks Past 1.75 – Will the pair maintain this height?
- Solid UK Unemployment Boosts GBP – Recovers slightly from Tuesday weakness
- AUD Sentiment Low after RBA Minutes – ‘Aussie’ continues to slump Wednesday
- Forecast: Investors Await Central Bank Meets – BoE and RBA meet first week of August
The Pound AUD exchange rate gained on Tuesday as the Australian Dollar plummeted in response to the latest Reserve Bank of Australia (RBA) news. While GBP/AUD slipped back lower from its daily highs by the evening, its advance attempts continued on Wednesday.
GBP/AUD hit its highest level since the beginning of July, 1.7623, on Tuesday as investors sold off the ‘Aussie’ Dollar. However, markets’ determination to sell Sterling from its high levels saw the pair dipping back down to the region of 1.7462 by the evening. At the time of writing, GBP/AUD was up again and trended around 1.7600.
Pound (GBP) Boosted by May Unemployment Figures
Sterling dipped from its recent highs on Tuesday, as investors readjusted their positions on the currency amid the day’s uninspiring news.
The Pound had recently hit its highest levels since the first week of July in a strong rally that lasted from last week through to Monday. Investors followed up by engaging in a profit-taking selloff throughout Tuesday.
News that UK inflation had been solid in June did little to inspire the currency higher amid this downtrend, as investors already widely expect a Bank of England (BoE) interest rate cut.
June UK consumer prices were up 0.5% year-on-year, and 0.2% month-on-month. The better-than-expected scores were largely due to an increase in flight fares during the Euro 2016 Championships season.
Despite the ongoing pressure on Sterling however, the currency advanced once more on Wednesday after the UK’s May unemployment and June jobless claims figures had been published. The BBC reported;
‘The unemployment total fell to 1.65 million in the March-to-May period, down 54,000 from the previous quarter, the Office for National Statistics (ONS) said.
The number of people in work rose by 176,000, with the employment rate remaining at a record high of 74.4%.
The figures cover the period before the UK vote to leave the European Union.
Earnings, not adjusted for inflation and excluding bonuses, rose by 2.2% compared with last year.’
Australian Dollar (AUD) Struggles Amid RBA Rate Cut Bets
The Australian Dollar plummeted across the board on Tuesday, losing out even against the Pound despite the market’s Sterling selloff.
A report of the Reserve Bank of Australia’s (RBA) July meeting minutes was released on Tuesday morning, met with a bearish reaction from investors.
The bank indicated that while it was not desperate to cut the key Australian interest rate again, it could not rule out an August rate cut depending on upcoming inflation figures.
Other factors towards the RBA’s decision was the overvaluation of the Australian Dollar. The ‘Aussie’ has been amongst the world’s most overvalued currencies in recent months as it strides from strength to strength.
The ‘Aussie’s strength could continue to be a problem for the RBA going forward depending on its actions, as the economic struggles in nations like Britain and Japan have left the Australian Dollar comparatively appealing long-term.
According to The Sydney Morning Herald, the bank may actually need to cut rates in order to keep the ‘Aussie’ low, as investors are now pricing in an RBA rate cut;
‘With investors expecting monetary settings to diverge as the US Federal Reserve raises interest rates and the RBA lowers them, the Aussie could climb to heights unseen since May 2015 if policy makers don’t follow through, according to Ilan Dekell …
Traders are pricing in a RBA rate cut and if it is “not delivered, the market will reassess and that will lead to the Aussie dollar to continue to rally,” Dekell said.’
Pound AUD Exchange Rate Forecast: Will the RBA Cut Rates?
Markets are likely to spend the next two weeks re-evaluating their positions on the Pound and the Australian Dollar, as bets that the Bank of England (BoE) and Reserve Bank of Australia (RBA) increase.
The BoE is currently widely expected to cut the key UK interest rate in its August meeting – or at the very least, introduce other stimulus measures.
Bets of BoE easing soared after the bank left policy frozen in its meeting last week, but indicated that policymakers would agree to action being taken in August.
However, the RBA’s situation is far less certain. As indicated by Ilan Dekell (via Sydney Morning Herald) the RBA may have to cut the key Australian interest rate in order to keep the Australian Dollar down, or face the currency rallying even higher.
On the other hand, another forecast from Macquire Research Analyst James McIntyre (via Business Insider Australia) suggests that even if the RBA does cut rates, the ‘Aussie’ is unlikely to plummet much and could remain overvalued despite the RBA’s best efforts.
As a result, the Pound to Australian Dollar exchange rate is likely to drop in both the short-term and the long-term, as ‘Aussie’ sentiment remains solid.
At the time of writing, the Pound AUD exchange rate trended in the region of 1.7600, while the AUD Pound exchange rate traded at levels around 0.5675.
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