Update: RBA Warns of Slow Wage Growth, Australian Dollar Exchange Rates Fluctuate
The Australian Dollar (AUD) broadly softened on Tuesday as the minutes from the Reserve Bank of Australia’s (RBA) latest interest rate decision indicated that interest rates aren’t likely to increase for the foreseeable future.
GBP/AUD gained as the RBA took a cautious stance on wage growth, but the Pound later fell back as UK public borrowing figures came in above forecast.
A speech from RBA Governor Philip Lowe also lent the ‘Aussie’ a little support as he implied that the next move for interest rates is more likely to be a hike than a cut.
With the Australian Westpac Leading Index due out overnight and the UK Budget tomorrow, further GBP/AUD exchange rate volatility can be expected.
A dip in the Westpac index would undermine demand for the Australian Dollar.
Update: Lowe Speech Key for AUD Forecast
Reserve Bank of Australia Governor Philip Lowe is set to give a speech later today that could alter the Australia Dollar exchange rate forecast, giving the currency a boost if he talks up the prospect of interest rate rises.
However, he is more likely to conclude that the current economic climate does not warrant higher borrowing costs.
Pound Sterling to Australian Dollar Exchange Rate Hits Six-Month High
Although the Australian unemployment rate showed a surprise dip from 5.5% to 5.4% in October, this failed to keep Dollar (AUD) exchange rates on a stronger footing last week.
As the unemployment dip was accompanied by a fall in the corresponding participation rate, the data suggests that the domestic labour market is still not tightening as policymakers would like.
This left the Australian Dollar to trend lower against its rivals ahead of the weekend, even as a softening US Dollar boosted the general sense of market risk appetite.
With the outlook of the Australian economy still looking mixed, the prospect of the Reserve Bank of Australia (RBA) returning to a monetary tightening bias in the coming months remains rather distant.
2017 UK Budget May Weaken Demand for Pound Sterling Exchange Rates
Even as anticipation for Chancellor Philip Hammond’s Budget announcement mounted, the Pound to Australian Dollar (GBP/AUD) exchange rate returned to a stronger footing.
While Hammond’s hands appear largely tied by the UK’s weaker finances, there are still hopes that he could deliver a stimulating Budget and offer support to the flagging economy.
Speculation over Brexit also encouraged GBP exchange rates to recover some ground, with reports suggesting that Theresa May could be moving closer to making a breakthrough in the stalled talks.
If the UK does manage to move negotiations along, and clear up the issue of the so-called divorce bill, before the end of the year this could see Sterling trending higher across the board.
On the other hand, fresh disappointment may exacerbate the downside bias of the GBP AUD exchange rate once again.
AUD Forecast: Dovish RBA Minutes to Weigh on Australian Dollar Exchange Rates
Australian Dollar exchange rates may struggle to find particular support this week, meanwhile, with the RBA’s November meeting minutes likely to maintain a relatively dovish tone.
Unless policymakers show signs of adopting a more optimistic stance on the domestic economy and its outlook, AUD exchange rates could slump further.
Greater dovishness could equally exacerbate the softness of the antipodean currency, increasing the risk of the RBA’s next move being to cut interest rates rather than raise them.
Focus will also fall on the Westpac leading index report for October, which is expected to have held steady at 0.1% on the month.
Sluggish economic activity is unlikely to improve the appeal of AUD exchange rates, giving investors further reason to sell out of the ‘Aussie’ on Tuesday.
Pound Sterling Forecast: Limited GBP Reaction to UK GDP Second Estimate Forecast
No change is expected from the second estimate of the third quarter UK gross domestic product, limiting the potential for any Pound rally.
As the first estimate suggested that the economy recovered some momentum on the quarter, though, a confirmation of this could keep something of a floor under GBP exchange rates.
However, if there are signs that the economy is still struggling to shake off the impact of Brexit-based uncertainty and political jitters, the mood towards Sterling could sour.
Even so, the key influence on the GBP AUD exchange rate in the near term is still likely to be political developments rather than economic data.
Data Affecting This Week’s GBP/AUD Exchange Rate Forecast
21st November 00:30 AU Reserve Bank of Australia November Meeting Minutes
21st November 09:30 UK Public Sector Net Borrowing (OCT)
21st November 23:30 AU Westpac Leading Index (MoM) (OCT)
22nd November 12:30 UK Chancellor Presents Budget to Parliament
23rd November 09:30 UK Gross Domestic Product (YoY) (3Q P)