Pound Sterling Australian Dollar GBP AUD Exchange Rate Slump Forecast to be Short-Lived

November 4, 2015 - Written by Frank Davies

STORY LINK Pound Sterling Australian Dollar GBP AUD Exchange Rate Slump Forecast to be Short-Lived

GBP to AUD Exchange Rate Dropped to Low of 2.1379 Yesterday

The Pound Sterling Australian Dollar exchange rate traded up to as high as 2.1618 GBP AUD in the minutes leading up to the latest Reserve Bank of Australia (RBA) monetary policy announcement at 0330hrs GMT yesterday morning.

However, the market instantly reacted to the RBA’s decision to hold its cash rate at its current level of 2.0% by supporting the Australian Dollar (currency : AUD), sending the GBP AUD exchange rate tumbling to 2.1379 – its lowest level since last month – during the hours which followed.

Reserve Bank of Australia (RBA) Governor Warns that Inflation Outlook may Require Further Easing

This renewed support for the Aussie was partly driven by the RBA policymakers’ collective decision to sit on their hands for the near-term, but there was more behind the price action for the Australian unit than this.

RBA Governor Glenn Steven’s assertion that, ‘prospects for an improvement in economic conditions had firmed a little over recent months,’ certainly provided assistance for the Australian tender.

Nevertheless, many analysts suggested that the current bout of support for the Aussie may prove to be short-lived, given Steven’s suggestion that, ‘the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand.’

Stevens went on to raise another potential risk factor for his local tender; alluding to US central bank actions he noted that, ‘the Federal Reserve is expected to start increasing its policy rate over the period ahead, but some other major central banks are continuing to ease monetary policy.’

Although Stevens attempted to sugar the pill of a potential US rate hike by pointing to looser policy stances taken by central banks including the European Central Bank, the implication was clear – an American rate increase is close at hand and the Australian Dollar is forecast to lose ground as a consequence.

US ADP Employment Change and ISM Non-Manufacturing to Provoke 'Aussie' Volatility

Looking ahead, two data sets dominate today’s roster and both of them come from the US this afternoon – the latest ADP Employment Change figure and the ISM Non-Manufacturing Composite survey for October.

A strong showing from one or both of these would see investors factor-in a higher percentage chance of a December rate hike in the US.

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TAGS: Australian Dollar Forecasts