Update: Australian Economic Forecasts from 2018 Federal Budget Leave GBP/AUD Exchange Rate Strong
The Pound has continued to advance against the Australian Dollar on Tuesday afternoon, following release of the Australian budget.
Although the spending measures have been praised by some analysts, there are concerns that for low-income workers any tax relief may be minimal.
The concern is that while tax cuts for low-earners may sound good on paper, they could have a scarcely noticeable effect on Australian families who struggle the most.
Background Optimism over BoE Interest Rate Decision Triggers GBP/AUD Exchange Rate Rise
The Pound (GBP) has continued its weekly advance against the Australian Dollar (AUD) today, posting a 0.5% rise in the pairing.
This appreciation is partly down to Australian Dollar weakness, although there are lingering hopes for a positive message from the Bank of England this week.
BoE policymakers are widely forecast to leave UK interest rates on hold, following a series of poor UK data releases.
The background hope is that policymakers could still hint at a UK interest rate hike in 2018, which would rekindle hopes among GBP traders.
Australian Dollar to Pound Exchange Rate (AUD/GBP) Drops -0.4% on Mixed Federal Budget Reaction
The Australian Dollar has struggled against the Pound today, falling by -0.5% in the AUD/GBP pairing.
The latest Australian economic news has been the release of the 2018 Federal Budget.
The government’s plans have included tax cuts for low and middle-income earners, along with a crackdown on illegal financial activities.
Ratings agency Standard and Poor’s was cautiously optimistic, with analysts stating:
‘The budgetary position has improved over the past year, aided by strength in the Australian and global economies.’
Less positively, Australian Chamber of Commerce and Industry CEO James Pearson warned that:
‘This is a positive budget, but it leaves Australia more exposed than we would like to any deterioration in the global economic environment.’
More broadly, AUD losses may also be down to trader concerns about US President Donald Trump’s upcoming Iran nuclear deal announcement.
Considering this is a factor which could be weighing on the Australian Dollar, Manuel Oliveri of Credit Agricole said:
‘It is an event risk and has the potential to make risk sentiment, which is already cautious, more unstable.’
GBP/AUD Forecast: Will BoE Interest Rate Freeze Trigger Pound to Australian Dollar Exchange Rate Crash?
For the rest of the week, Pound/Australian Dollar (GBP/AUD) exchange rate movement may be caused by the Bank of England (BoE) interest rate decision on Thursday.
Policymakers at the UK central bank will be meeting to decide whether to adjust interest rates from their current level of 0.5%; current forecasts are for no change.
These predictions are in stark contrast to forecasts in early April, when an interest rate hike up to 0.75% was considered almost guaranteed.
If BoE policymakers hold fire for another month then the Pound to Australian Dollar exchange rate could drop sharply.
Seven out of nine members of the Monetary Policy Committee (MPC) are expected to back an interest rate freeze; such a result could drain GBP trader confidence.
Although UK trade balance data and production stats will also be out on Thursday, these could be overshadowed by fallout from the BoE meeting.
The next Australian economic data will be Westpac’s consumer confidence reading for May, out on Wednesday.
This is tipped to show a 0.4% rise in consumer sentiment, which could cause the Australian Dollar (AUD) to advance against the Pound (GBP) ahead of the BoE meeting.
As a counterpart to a possible Pound drop from the BoE news, the Australian Dollar to Pound (AUD/GBP) exchange rate may rise sharply.