GBP/AUD Exchange Rate Strikes AU$1.77 but will a Hawkish BoE Trigger a Rebound?

GBP/AUD Exchange Rate Slumps ahead of BoE Rate Decision 

The Pound to Australian Dollar (GBP/AUD) exchange rate is on the back foot this morning, as markets brace for the Bank of England’s first rate decision of 2021. 

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.7797, down roughly 0.4% from this morning’s opening rate. 

Pound (GBP) to Rally as BoE to Pour Cold Water on Negative Rates? 

The Pound (GBP) finds itself drifting lower this morning, as investors reposition themselves ahead of the BoE’s latest rate decision. 

The current consensus is that the BoE will opt to leave its monetary policy untouched today. 

But, Governor Andrew Bailey is also likely to broach the subject of negative interest rates, which has the scope to trigger a rebound in the Pound if, as expected, he pours more cold water on the idea of slashing interest rates below zero. 

Analysts at TDS predict. 

‘The upcoming BoE meeting should see monetary policy left on hold but downgraded macro forecasts and an update to its thinking on negative interest rates.  

‘We think that the BoE’s conclusions are likely to conclude that while negative interest rates should be part of the toolkit, and that the lower bound for Bank Rate is now below zero, negative rates are not imminent and are unlikely to be implemented in the current economic cycle.’ 

However, the BoE will also publish its latest economic forecasts today, which could cap the upside in Sterling, as the UK’s third national lockdown is likely to result in growth expectations being revised lower. 

Australian Dollar (AUD) Firms as National Trade Surplus Strikes Six-Month High 

Meanwhile, the Australian Dollar (AUD) is well supported against the Pound this morning, thanks to the publication of some stronger-than-expected domestic trade figures. 

According to data published by the Australian Bureau of Statistics, Australia’s trade surplus rose from AU$5.014bn to AU$6.785bn in December, the largest surplus in six-months. 

The jump in Australia’s trade surplus comes in spite of rising tensions with China, which has introduced import restrictions on Australian exports in recent months as part of a diplomatic squabble over the coronavirus pandemic. 

While China remains Australia’s largest trading partner, it appears that exporters have been able to find other markets for their goods. 

Daniel Hynes, a senior commodity strategist at ANZ, comments: 

‘In particular, Australian coal shut out of China is rapidly finding new homes. The complete collapse of exports to China has been more than offset by gains in exports to Japan, India, South Korea and Thailand.’ 

GBP/AUD Exchange Rate Forecast: RBA Policy Statement in Focus  

Looking past this afternoon’s BoE rate decision, the Pound to Australian Dollar (GBP/AUD) exchange rate may find support at the end of this week, with the release of the Reserve Bank of Australia’s latest statement on monetary policy. 

Following the RBA’s surprise move to expand its quantitative easing programme earlier this week, the latest statement is likely to be dovish in tone, and as such could dampen the mood around the ‘Aussie’. 

Meanwhile, the focus GBP investors may return to the UK’s ongoing fight against the coronavirus, with Sterling potentially receiving a boost if there are any hints from the government about easing the lockdown in the coming weeks. 

Matthew Andrews

Contact Matthew Andrews