GBP to AUD Exchange Rate Advances as Reserve Bank of Australia Leaves Door Open for Rate Cut

February 18, 2020 – Written by Toni Johnson

Even with Australian data decent recently, the Australian Dollar has seen a volatile few weeks due to persisting market concerns over a coronavirus outbreak, and this is making it easier for the British Pound to Australian Dollar (GBP/AUD) exchange rate to sustain gains. The Pound is benefitting from weakness in rivals, as well as rising market optimism over Britain’s upcoming budget presentation. The Australian Dollar has also been weakened by the latest Reserve Bank of Australia (RBA) news.

Despite the Australian Dollar’s attempts to recover recently, GBP/AUD still climbed considerably from 1.9310 to 1.9434 last week. This week’s movement has again been mixed, with GBP/AUD sliding briefly yesterday before jumping again today.

In the middle of the day, GBP/AUD touched on a fortnight high of 1.9513 before sliding and trending closer to the level of 1.9471 at the time of writing.

Looking ahead, data will remain in focus for Pound investors while Australian Dollar investors focus on coronavirus developments and data.

GBP Exchange Rates Advance as UK Budget Date Confirmed

Last week saw Sterling surge in reaction to news that loyalist Rishi Sunak had become Britain’s new Chancellor.

His appointment boosted hopes that the next budget would see more expansionary plans and government spending, which could boost UK economic activity and help with an economic rebound.

Hopes of an economic rebound have doused Bank of England (BoE) interest rate cut speculation and supported the Pound, and bullishness around the upcoming budget continued to boost Sterling today.

Sunak confirmed in a tweet that the budget would go ahead and be held on the 11th of March – the same as the previously scheduled date. Investors were relieved that there would be no delay to the budget.

Still, the Pound’s gains were limited and the British currency was unable to hold its best levels. Today’s UK job market report was mixed, with job changes rising but wage growth falling.

Overall though, investors were pleased that pay had seen pre-crisis levels in the report. According to the report:

‘Real regular pay increased by 1.8% to £474 between December 2018 and December 2019.

This was the first time that real regular pay exceeded the pre-downturn peak of £473 recorded in March 2008. However, the annual rate of growth of both total and regular pay slowed down in recent months.’

AUD Exchange Rates Weak on Dovish RBA Minutes and Coronavirus Concerns

The Australian Dollar has been fairly resilient lately, as a decent domestic outlook makes investors hesitant to keep selling the currency too low.

However, global factors continue to weigh heavily on the currency and led to fresh losses today.

Overnight, the Reserve Bank of Australia (RBA) published its latest meeting minutes. In the minutes, the bank showed deeper concern about the possibility of the coronavirus affecting global economic growth, and indicated that another rate cut was on the table.

According to analysts at Australia and New Zealand Banking Group (ANZ):

‘The minutes do not specifically refer to the need for the economy to deteriorate before the RBA will consider another rate cut. They suggest an open approach to lack of progress toward the Bank’s target is still a possible trigger for a move lower.

But we are careful about overplaying this as Governor Lowe has been clear about what economic developments would be needed to get the Bank back to easing.’

In combination with fresh RBA rate cut speculation, the Australian Dollar is less appealing due to market risk-aversion.

The Australian Dollar is often correlated to trade-sentiment, so news that the coronavirus had negatively impacted Apple’s growth forecasts made investors anxious that the impact of the virus spread had been underestimated.

GBP/AUD Exchange Rate Forecast: Key Data Could Drive Pair in Coming Days

With the UK budget speculated to lead to a boost in spending that could support Britain’s economic rebound, and the Reserve Bank of Australia (RBA) leaving a rate cut on the table, Pound to Australian Dollar investors turn their attentions towards upcoming data.

Key UK data will be published through the end of the week. Inflation is due tomorrow, retail sales on Thursday and February PMI projections on Friday.

Australian data will be largely job market stats, with wage figures due tomorrow and other job market results on Thursday.

As Australia’s job market is highly important to Australia’s economic outlook, investors may be hesitant to react much to Australian data until Thursday’s job stats come in.

If these stats surprise investors, they could influence the economic outlook and the Pound to Australian Dollar exchange rate.

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TAGS: Pound Australian Dollar Forecasts