Pound Falls versus Australian Dollar (GBP/AUD) Despite Australian Rate Cut Expectations

February 16, 2015 - Written by James Fuller

STORY LINK Pound Falls versus Australian Dollar (GBP/AUD) Despite Australian Rate Cut Expectations

The Pound slipped against the Australian Dollar on Monday despite investors expecting more central bank rate cuts in the Antipodean nation. The Reserve Bank of Australia is expected to lower rates in the next few months after already dropping the benchmark by 25 basis points to 2.25%. The lower rates have seen mortgage activity increase dramatically in the past several weeks, adding weight to speculation that further cuts are on the way. Industry expert Angelo Benedetti commented: ‘The light’s turned on in a lot of people’s heads and the recent rate reduction has sparked them into being more aggressive in the purchase of property. Money is as cheap as it has been in 40 years. People are saying “how much lower can they go?” and real estate agents are getting a lot more offers. It’s not just people wanting to save money—it’s people saying now is a good time to buy and they are starting the pre-approval processes.’

Monday has been an extremely quiet day for markets, lending a lot of movement to speculation surrounding events scheduled for the rest of the week. As the RBA is expected to cut rates, investors are eyeing the Bank of England’s meeting minutes (released on Wednesday) for any indication of UK rate hikes. The release of minutes can see large swings in the Pound as investors scrutinise any divergence among policymakers. Last year saw two of the nine members begin to vote in favour of interest rate hikes but after four consecutive months, the two hawks reverted to doves as falling inflation caused concerns. Tuesday’s UK Consumer Price Index will also be under the microscope as investors anticipate how far inflation will drop.

Monetary Policy Committee member Martin Weale stated: ‘If very low expectations of inflation were to become entrenched there would be a risk that the economy would sink into a deflationary spiral. Wages and prices could fall, people might put off spending if they thought things would be cheaper in the future, and they would find that, even though interest rates were very low, their mortgages became a burden which was difficult to manage.’

Monday’s Australian Weekly Consumer Confidence could have a low impact on the ‘Aussie’, whereas the Australian Conference Board Leading Index and Westpac Leading Index on Tuesday could have a moderate effect. As we draw closer to the UK general election, the Pound could fluctuate in response to any political debates and changes.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Australian Dollar Forecasts Currency Predictions Daily Cur Forecasts