The Pound (GBP) to Australian Dollar (AUD) exchange rate fell sharply on Tuesday after a report showed that UK inflation fell to a five-year low of 1.2%, raising expectations that the Bank of England (BoE) will refrain from raising interest rates.
According to the Office for National Statistics (ONS), the UK’s rate of Consumer Price Inflation (CPI) slowed to 1.2% in September, a drop from the 1.5% recorded in August and was well below economist expectations for a fall to 1.4%. On a month on month basis CPI was flat after the 0.4% rise seen in August.
Core CPI, which excludes volatile items such as food, alcohol and tobacco rose at a rate of 1.5$ in September, a drop from the 1.9% recorded in the preceding month and was below forecasts for a rise to 1.8%.
Following the release of the UK, the Australian Dollar was able to shrug off earlier weakness and advance strongly to push higher by more than 0.50%.
Early in the session, the Australian Dollar had been under pressure after Reserve Bank assistant Governor Guy Debelle warned that the global economy was heading towards a violent crash and reiterated that the ‘Aussie’ is overvalued.
Speaking at the Citi Annual Australian and New Zealand investment conference in Sydney, Mr Debelle said that the Australian Dollar was still too high despite its sharp falls in September.
‘The Australian dollar has depreciated in recent weeks, but on a trade weighted basis is only back to levels of earlier in the year, Over that same period, Australia’s terms of trade has continued to decline and some key commodity prices for Australia, most notably the iron ore price, have declined considerably. On that basis, the Australian dollar is still higher than most conventional estimates of fundamentals would indicate, notwithstanding its recent decline,’ said Debelle.
Also offering support to the Australian Dollar was the decision by the Peoples Bank of China (PBOC) to cut interest rates for the second time this month, a move that raised hopes that the bank was loosening monetary policy in a bid to help stimulate the world’s second largest economy and Australia’s biggest trade partner.
Pound Sterling to Australian Dollar Exchange Rate
The Pound looks set to continue its downward trajectory against the Aussie as fears over a slowdown in the global economy appear to be justified.
UK data is beginning to disappoint and confirm the BoE’s prediction of a slowdown as the year ends.
The sharper than expected falls in inflation and production however are forecast to cause the BoE to delay raising interest rates until the middle of next year at the earliest.
Wednesday’s UK Average Earnings and Unemployment Rate data will be the deciding factor as to what direction the Pound will take for the rest of the week.
UPDATE
The Pound Sterling to Australian Dollar exchange rate is currently trending in the region of 1.8217.
Sterling has declined further against the Australian Dollar on Wednesday despite continued cautious trading driving markets. This can be attributed to a healthy set of Australian domestic data publications. The Westpac Consumer Confidence Index advanced from 94 to 94.8 and New Motor Sales increased from -3.5% to 2.9%.
Sentiment towards the Pound remains negative after Tuesday’s disappointing inflation data. Wednesday’s data has the potential to halt the Sterling downtrend, but is unlikely to overshadow inflationary concerns.
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,0.8738 ,
Australian Dollar,,Pound Sterling,0.5468 ,
Australian Dollar,,Euro,0.6888 ,
Australian Dollar,,New Zealand Dollar,1.1123 ,
US Dollar,, Australian Dollar ,1.1439 ,
Pound Sterling,, Australian Dollar ,1.8322 ,
Euro,, Australian Dollar ,1.4495 ,
New Zealand Dollar,, Australian Dollar ,0.8981 ,
[/table]
