Update: Reserve Bank of Australia Keeps Interest Rates on Hold, yet GBP/AUD Exchange Rate Weakens
The GBP/AUD exchange rate has slipped below opening levels this morning, despite a more cautious outlook from the Reserve Bank of Australia (RBA) during its latest monetary policy meeting.
The official cash rate (OCR) has now been left frozen for 19-months, equalling the previous record for unchanged monetary policy, with the RBA still waiting for better wage and unemployment data before considering tightening policy.
Pound Sterling to Australian Dollar Exchange Rate Left Volatile as Arguments over Brexit Weigh on GBP but US Trade Tariffs Weaken AUD
Markets were left jittery on Monday after Labour leader Jeremy Corbyn set out his vision for Brexit and called for the UK to arrange a new customs union with the EU; a move seen as an attempt to outflank the Tories ahead of Theresa May’s speech later in the week – and one that won the support of many in the private sector.
Arguments over the customs union continued into the week and, along with the latest UK economic data, kept the GBP/AUD exchange rate on choppy form.
Markets were disconcerted on Wednesday when Prime Minister Theresa May immediately shot down the EU’s draft Brexit text, which had suggested that Northern Ireland remain in regulatory alignment with the EU in order to avoid a hard border.
Even better-than-expected Markit PMIs for the manufacturing and construction sectors could not give the Pound the concrete boost it needed to rack up consistent gains.
GBP/AUD ended the week around the middle of the range seen over the previous five days, as Theresa May’s Brexit speech simply confirmed that the government was intending to leave the customs union and single market.
Announcement of US Steel and Aluminium Tariffs Keeps Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rate Volatile as Appetite for AUD Fluctuates
After a quiet start to the week, AUD overcame numerous headwinds on Wednesday to push the Pound Sterling to Australian Dollar exchange rate sharply lower.
The day’s January private sector credit data showed a worse-than-expected pace of business borrowing, suggesting that capital investment was weaker than hoped, which raised questions over the outlook for employment and wages.
The Chinese manufacturing PMI dropped much further than markets were anticipating, falling to within 0.4 points of contraction territory, with risk-appetite weakened further by the strong odds of an interest rate hike this month from the US Federal Open Market Committee (FOMC).
However, with the Australian Dollar at multi-month lows versus many of its peers, speculators were taking the opportunity to buy the ‘Aussie’, with the currency’s upside potential still strong despite the severe headwinds it was facing.
This strength did not last long, however, with the GBP/AUD exchange rate swiftly returning to volatile form as the Australian Dollar was weakened by announcements from the White House that the US would levy tariffs on steel and aluminium imports.
This represents a bold step towards protectionism from President Donald Trump and has weighed on global risk-appetite; particularly for the Australian Dollar, whose economy strongly relies on the export of key steelmaking ingredient iron ore.
AUD in Driving Seat of Australian Dollar to Pound Sterling Exchange Rate? RBA Meeting and GDP Figures Forecast to Keep Pairing Volatile
With today’s key UK services and composite PMIs out of the way, there is little UK data left on the calendar to create volatility for the Pound Sterling to Australian Dollar exchange rate until Friday’s slew of trade, industrial production, manufacturing production and construction output figures.
The National Institute for Economic and Social Research (NIESR) will also release its GDP estimate for February at the end of the week.
The Australian Dollar could therefore be the driving force behind GBP/AUD exchange rate movement, given the numerous high-impact developments that could move the ‘Aussie’.
The Reserve Bank of Australia (RBA) will announce its latest monetary policy decisions early tomorrow morning; tomorrow evening Governor Philip Lowe will give a speech in Sydney, giving markets two opportunities to gauge the mood amongst policymakers.
The high-impact developments keep coming on Wednesday, with the release of fourth-quarter GDP figures for 2017 - growth is expected to have slowed both on the quarter and on the year, so GBP/AUD could rise midweek.
Other key developments this week include the Chinese and Australian trade data on Thursday and Chinese inflation data and the US non-farm payrolls report on Friday.