Pound Australian Dollar Exchange Rate Sinks on Increasing Bank of England Rate Cut Odds

January 13, 2020 – Written by John Cameron

GBP/AUD Exchange Rate Edges Higher, ‘Aussie’ Gains on US-China Trade Deal Hopes

The Pound Australian Dollar (GBP/AUD) exchange rate fell by -0.6% today, with the pairing currently trading around AU$ 1.881 as the risk-averse ‘Aussie’ continues to benefit from renewed risk-appetite as markets prepare for a US-China ‘phase one’ trade deal to be signed off this week.

Joseph Capuso, a Currency Strategist at the Commonwealth Bank, was more cautious, however, saying:

‘A calmer geopolitical backdrop and the signing of the US-China Phase 1 agreement is, on balance, favourable for global growth.’

‘However, the 86-page Phase 1 agreement has not yet been made public. There are doubts how comprehensive the deal is, and whether the Phase 1 agreement will be implemented in full by both governments’.

The Australian Dollar (AUD) also benefit from today’s release of the Australian TD Securities inflation figure for December, which rose from 0% to 0.3%.

However, some ‘Aussie’ investors are betting on a weakening of the currency as Australia’s bushfire are expected to negatively impact the economy.

Terrence Wu, a Strategist at OCBC Bank, Singapore, commented:

‘The fires are definitely an additional weight on the economy, and should lower the barriers for an [Reserve Bank of Australia] rate cut.’

GBP/AUD Exchange Rate Falls as UK Growth Undercuts Forecasts in November

The Pound (GBP) fell against many of its rival currencies today after the UK growth figure for November undercut expectations and sank from 0.1% to -0.3% amid talk from the Bank of England (BoE) that it could cut interest rates to bolster Britain’s flagging economy.

Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, was measured in his response, saying:

‘The latest GDP data are nowhere near as horrendous as they appear initially. The sharp fall in November has followed upwardly revised growth in the previous two months.’

‘In addition, nearly all of November’s fall in GDP was attributable to temporary weakness in the manufacturing and distribution sectors.’

Sterling has remained weak, however, as UK markets are beginning to price in a rate cut from the central bank in the near-term.

Brexit also remains in focus this week with Prime Minister Boris Johnson’s EU Withdrawal Agreement Bill due to go through the House of Lords. Any further obstacles to a trade deal with the EU, however, would prove Pound-negative.

GBP/AUD Outlook: Could the ‘Aussie’ Rise on a ‘Phase One’ US-China Trade Deal?

Pound (GBP) investors will be looking ahead to December’s inflation figure tomorrow. Any signs of further deterioration in the British economy, however, would exacerbate fears of a rate cut from the BoE and weaken the Pound.

Brexit will also continue to remain in focus, with any signs of further obstacles to a possible UK-EU trade deal beyond the 31st January – when the UK is due to leave the EU – weakening the GBP/AUD exchange rate.

US-China trade relations will continue to drive the GBP/AUD exchange rate this week. Any signs that the US and China could compromise on trade in the near-term would provide more uplift for the risk-sensitive ‘Aussie’.

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