Pound Australian Dollar (GBP/AUD) Exchange Rate Accelerates Following Cautious RBA Statement

August 10, 2018 – Written by John Cameron

The Pound Australian Dollar (GBP/AUD) exchange rate is ticking higher today in the wake of the Reserve Bank of Australia’s (RBA) latest quarterly statement.

Australian Dollar (AUD) Exchange Rate Weakened by RBA’s Dovish Tone

The Australian Dollar (AUD) is falling against the Pound (GBP) and the majority of its other peers this morning as markets react to the RBA’s latest statement on monetary policy.

While the RBA’s outlook remained largely in line with previous estimates, delivering a fairly upbeat assessment of Australia’s economic performance, there was some underlying caution evident in the RBA’s message, which weighed on the ‘Aussie’ this morning.

This can partly be seen in the bank’s decision to downgrade its near-term inflation expectations, which saw the RBA forecast that price growth will no longer reach the bank’s target rate of 2% by the end of 2018, instead coming up short at 1.75%.

Offering come context to the downgrade, RBA Governor Philip Lowe said:

‘Electricity prices in some cities have declined recently after earlier large increases, and changes in government policy are likely to result in a decline in child care prices as recorded in the CPI.

‘There have also been changes to some state government programs that are expected to lead to lower measured prices for some services.’

Adding to this note of caution was the bank’s warning that in the face of escalating concerns of a potential trade war between the US and China ‘downside risks to global growth from trade protectionism have increased’.

Pound (GBP) Exchange Rate Lifted by Uptick in GDP

Meanwhile the Pound (GBP) accelerated its gains against the Australian Dollar (AUD) at the start of the European session following the release of the UK’s latest GDP figures.

According to data published by the Office for National Statistics (ONS), the UK economy expanded by 0.4% in the second quarter as Britain’s economy recovered from the slowdown in the first quarter on the back of disruption caused by the ‘Beast from the East’.

The rebound in growth was largely thanks to a solid expansion of the UK’s services sector as the sunny weather and World Cup helped to boost consumer activity.

However with the rebound having been largely priced into GBP ahead of time, the Pound’s gains were somewhat limited, especially as analysts appeared largely pessimistic in the face of the GDP figures.

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said:

‘While there was a welcome uptick in GDP growth in the second quarter, the figures have been flattered somewhat by a very weak first quarter, and so does little to alter the UK’s lacklustre growth trajectory.

‘There is little in the latest data to suggest a sustained upturn in the UK’s economic growth prospects, or evidence to corroborate the decision to raise interest rates.’

GBP/AUD Exchange Rate Forecast: UK Inflation and Wage Growth Figures in Focus

Looking ahead to next week’s session, the Pound Australian Dollar (GBP/AUD) exchange rate may look to extend its gains with the release of the UK’s latest jobs report and Consumer Price Index (CPI).

First up will be the UK’s labour report, with GBP investors likely to focus on the release of the wage growth figures on hopes that an uptick in wages will help to bolster UK consumer spending.

It will be Wednesday’s CPI data that is likely to provide the most upside for the Pound however, with economists forecasting that inflation climbed from 2.4% to 2.5% in July.

Meanwhile for AUD investors the focus will be on Australia’s own jobs report, with the Australian Dollar likely to sink if employment growth slows in line with forecasts.

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