Pound Australian Dollar (GBP/AUD) Exchange Rate Strengthens in Wake of RBA Decision

GBP/AUD Exchange Rate Rises as Investors Digest RBA Forward Guidance

The Pound Australian Dollar (GBP/AUD) exchange rate firmed slightly this morning as AUD confidence dropped following the Reserve Bank of Australia (RBA)’s interest rate decision.

At the time of writing, GBP/AUD is trading at A$1.8631, slightly up from this morning’s opening levels.

Australian Dollar (AUD) Muted Over Dovish Messaging

The Australian Dollar (AUD) has fallen against the majority of its peers today as investors are bearish in the wake of the RBA’s interest rate decision.

The Reserve Bank of Australia kept the cash rate unchanged at a record low of 0.1% during its September meeting, as widely expected. Officials then confirmed plans to trim the purchase of government bonds to A$4 billion a week until at least mid-February – a longer period than expected.

Striking a dovish tone, the central bank said GDP is expected to fall materially in Q3, with the jobless rate to move higher in the coming months. Policymakers also stipulated that the pace of the economic bounce-back is likely to be slower than it was earlier in the year.

Joseph Capurso, head of international economics at Commonwealth Bank of Australia, commented:

‘The Aussie went up because the RBA tapered, and only about half of economists expected that. The reason it then went down is because the RBA will buy at a rate of 4 billion a week for longer.’

Su-Lin Ong, of RBC Capital Markets, calls it a ‘dovish taper’. The head of Australian fixed income strategy observes:

‘The fact that they are happy to taper, but are going to keep it going for longer tells you that they’re still injecting quite a lot of stimulus into the system.’

Pound (GBP) Sentiment Dampened by Domestic Tax Concerns

Despite rallying against the ‘Aussie’, the Pound (GBP) has fallen against the majority of its peers today as Prime Minister Boris Johnson confirms a rise in National Insurance tax to pay for health and social care.

The announcement has provoked criticism across the board, most notably from opposition leaders Sir Keir Starmer and Sir Ed Davey. Starmer has retaliated to the £12bn-a-year tax rise with accusations that the PM has ‘no plans to help the low paid in social care, no plan for adults with disabilities, and no plan to improve pay and conditions.’

Boris Johnson, meanwhile, has conceded that the new measures are breaking the Tories’ manifesto promise, but justifies the move: ‘no one foresaw a global pandemic.’

Sterling headwinds are exacerbated by Covid and Brexit concerns, as staff and supply chain issues persist across the UK. The United Kingdom has extended the post-Brexit grace period over Northern Ireland, as a result of a stalemate in talks with the EU: Brussels continues to withhold its formal agreement on the protocol.

Pound Australian Dollar Exchange Rate Forecast: ‘Aussie’ to Gain on RBA Speech?

Looking to tomorrow, RBA representative Guy Debelle is due to make a scheduled speech. If Debelle makes any hawkish references to the bank’s forward guidance, the Australian Dollar may rise against the Pound.

A lack of UK data, on the other hand, leaves GBP exposed to headwinds. If the political climate in Britain remains tense, Sterling may stumble further.