Pound Australian Dollar (GBP/AUD) Exchange Rate Strengthens as RBA Slashes Growth Forecasts

GBP/AUD Exchange Rate Rallies on Weaker RBA Growth Outlook

The Pound to Australian Dollar (GBP/AUD) exchange rate rebounded from weekly lows this morning after the Reserve Bank of Australia (RBA) cut its growth forecasts for 2020.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.9345, surging 0.7% from today’s opening levels.

Australian Dollar (AUD) Slumps as RBA Slashes 2020 GDP Forecasts

The Australian Dollar (AUD) in on the defensive this morning, in response to the Reserve Bank of Australia’s latest Statement on Monetary Policy (SoMP).

In contrast to relatively optimistic tone struck by the bank following its latest policy meeting earlier in the week, the RBA’s SoMP was decidedly more downbeat as it slashed its GDP forecasts.

The RBA cut its June 2020 GDP forecast from 2.6% to 1.9% and its December forecast from 2.8% to 2.7% to reflect the impact of the recent drought, bushfires and coronavirus outbreak in China.

Appearing before the House of Representatives economics committee in Canberra, RBA Governor Philip Lowe also warned that the coronavirus outbreak is likely to do more damage to Australia’s economy than the 2003 Sars epidemic.

Lowe warned:

‘Our links with China are much more extensive than they were, the Chinese population is much more mobile than it was in 2003 and the Chinese economy in 2003 was growing very strongly.

‘It took a hit of 2% in one quarter but bounced back quickly. Growth now is slower and the capacity to bounce back and have stimulus measures isn’t as great.’

Wider concerns about the impact of the coronavirus on global growth are also weighing on the Australian Dollar this morning as it limits market risk appetite.

Pound (GBP) Upside Limited by Brexit Uncertainty

Whilst the Pound (GBP) is trending higher against the Australian Dollar (RBA) this morning, the upside in the GBP/AUD pairing appears capped by ongoing Brexit uncertainty.

GBP investors are increasingly skittish about the possibility of a no-deal Brexit at the end of 2020 following a combative speech from Boris Johnson at the start of the week.

Outlining his vision for a post-Brexit trade negotiations with the EU, called for a Canada-style trade deal in which the UK would not be tied down by EU regulations, warning that he would walk away from negotiations if such a deal was not on the table.

With the EU repeatedly stating that any free trade deal with the UK would need to be based on alignment with EU rules, it seems unlikely Johnson will be able to secure the deal he is looking for.

GBP/AUD Forecast: Stagnating UK GDP to Weigh on Sterling?

Looking ahead to next week, the Pound to Australian Dollar (GBP/AUD) exchange rate looks likely to tumble through the first half of the session with the publication of the UK’s latest GDP figures.

Barring an explosive end to the year, it looks likely the GDP figures will report that the UK economy stagnated in the last quarter of 2019, prompting Sterling to move lower.

Meanwhile, the focus for AUD investors will be on the release of Australia’s latest consumer and business confidence figures.

This may drag on the ‘Aussie’ if concerns over the coronavirus lead to a slump in sentiment at the start of 2020.

Matthew Andrews

Contact Matthew Andrews


Related