Pound Australian Dollar (GBP/AUD) Exchange Rate Rangebound as RBA Signals Record Low Interest Rate to Remain in Place for Some Time

GBP/AUD Exchange Rate Muted Following RBA Rate Decision

The Pound to Australian Dollar (GBP/AUD) exchange rate is stuck trading in a narrow range this morning, in the wake of the Reserve Bank of Australia’s (RBA) latest rate decision.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.9352, virtually unchanged from this morning’s opening rate.

Australian Dollar (AUD) Flat as RBA Signal’s Ultra Low Interest Rates the New Normal

The Australian Dollar (AUD) is stuck trading in a narrow range against the Pound (GBP) and majority of its other peers following the Reserve Bank of Australia’s (RBA) latest policy meeting.

As was widely expected, the RBA voted to keep interest rates on hold this month, having slashed rates to a record low of 0.25% last month in an effort to shield Australia from the economic impact of the coronavirus.

However the RBA did signal that interest rates are likely to remain on hold so long as employment and inflation remains below target, something which is likely to result in the RBA’s ultra-loose monetary policy remaining in place for the foreseeable future.

The RBA’s policy statement read:

‘The Board is committed to do what it can to support jobs, incomes and businesses during this difficult period and to make sure that Australia is well placed for the expected recovery. The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band.’

Pound (GBP) Sidelined by Poor PMI Figures

At the same time, the Pound (GBP) is struggling for direction this morning following the publication of the UK’s latest services PMI figures.

According to finalised figures published by IHS Markit, activity in the UK’s vital service sector plummeted to a record low in April, abet at a slight slower pace than initially believed with the index being revised up from 12.3 to 13.4 in the final reading.

Economists forecast that this likely points to a unprecedented slump in UK GDP in the first quarter.

Tim Moore, Economics Director at IHS Markit, comments:

‘April’s PMI data highlights that the downturn in the UK economy during the second quarter of 2020 will be far deeper and more widespread than anything seen in living memory.

‘Historical comparisons of the PMI with GDP indicate that the April survey reading is consistent with the economy falling at a quarterly rate of approximately 7%.’

GBP/AUD Exchange Rate Forecast: BoE Rate Decision to Impact Sterling?

Looking ahead, the Pound to Australian Dollar (GBP/AUD) exchange rate could face some volatility later this week as the Bank of England (BoE) delivers its own rate decision.

Similarly to the RBA, the BoE is not expected to announce any policy changes at this month’s meeting, but it may drop some hints at future policy plans in its forward guidance.

This may help to buoy the Pound if the BoE signals it may ramp up its stimulus measures in order to support the UK’s recovery from the coronavirus crisis.

In the meantime, AUD exchange rates could edge higher this week as Australia moves closer towards reopening parts of its economy.

Matthew Andrews

Contact Matthew Andrews