Pound to Australian Dollar (GBP/AUD) Relatively Static as Political and Central Bank Speculation Circulates

January 26, 2015 - Written by David Woodsmith

STORY LINK Pound to Australian Dollar (GBP/AUD) Relatively Static as Political and Central Bank Speculation Circulates

The Pound remained in a tight range against the Australian Dollar on Monday as UK politics continues to heat up as we approach May’s general election. In addition, the Reserve Bank of Australia is expected to need to cut rates in the near future as other central banks lower borrowing costs amid a global slowdown. This week, investors will be eyeing Australian Consumer Price Index ecostats for a sign of RBA action. Any drop in inflation below forecast could see the ‘Aussie’ fall as speculation increases. Industry expert Craig James stated: ‘The main game is inflation, that’s make or break for those analysts who are expecting the Reserve Bank to cut interest rates in coming months.’

Australia’s inflation figure is expected on Wednesday and is believed to have fallen from 2.3% to 1.8% on the year in Q4. Goldman Sachs representative Tim Toohey commented: ‘Our forecast deceleration in the trimmed mean to 2.1% on year leaves this key measure well below where it was when the RBA last cut rates. However, our alternative favoured measures of underlying momentum suggest the fourth quarter could very easily be weaker still.’

Meanwhile, UK politics has taken the spotlight in a quiet data day. Prime Minister David Cameron has offered UK citizens an income tax cut if he gets voted back into power at May’s general election. As political parties vie for votes, the Pound could become extremely vulnerable. Cameron stated: ‘After years of sacrifice, the British people deserve a reward.’ However, after UKIP gained two seats in parliament last year, the general election could signal a shakeup in politics.

Tuesday will see the release of Australian Business Confidence and Business Conditions stats which could have a small influence on the ‘Aussie’. However, Tuesday could prove more influential for the Pound when UK Gross Domestic Product figures emerge. Annual growth is pegged to have expanded in the fourth quarter and could be a development that offers support to the Pound. However, after last week’s Bank of England meeting minutes showed that policymakers were all on the same side when it came to keeping the UK benchmark interest rate stable, the Pound softened. Furthermore, as investors price in a further delayed rate hike, the Pound is liable to suffer. Australian Skilled Vacancies are scheduled to be published on Wednesday and will be of slight influence to the ‘Aussie’. Meanwhile, any political uncertainty in the UK could influence the Pound.

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