Pound Sterling Australian Dollar Exchange Rate Forecast Turns Negative on RBA Announcement

August 2, 2016 - Written by John Cameron

STORY LINK Pound Sterling Australian Dollar Exchange Rate Forecast Turns Negative on RBA Announcement

RBA Rate Cut Fails to Keep Australian Dollar (AUD) Exchange Rates Depressed

Last night’s decision by the Reserve Bank of Australia (RBA) to cut its benchmark interest rate to a fresh record low of 1.50% was largely expected by investors. In a clear case of placing the cart before the horse, the Australian Dollar (currency : AUD) barely flinched in response to the action.

Pound Falls as GBP Demand Remains Depressed

However, the decidedly hawkish tilt of the wording of the RBA’s accompanying statement caught the majority of market participants on the back foot; the upshot had the unlikely effect of seeing the Dollar from Down Under strengthen against the Pound Sterling (currency : GBP), sending the GBP AUD exchange rate down to a relatively lowly 1.7391.

The RBA report noted that, ‘the global economy is continuing to grow, at a lower than average pace. Several advanced economies have recorded improved conditions over the past year, but conditions have become more difficult for a number of emerging market economies. Actions by Chinese policymakers are supporting the near-term growth outlook, but the underlying pace of China's growth appears to be moderating.’

The statement continued in the same vein, observing that global, ‘commodity prices are above recent lows, but this follows very substantial declines over the past couple of years. Australia's terms of trade remain much lower than they had been in recent years.’

GBP/AUD Exchange Rate Outlook Negative Ahead of BoE Decision

Turning to the domestic Australian economy, the RBA felt that, ‘recent data suggest that overall growth is continuing at a moderate pace, despite a very large decline in business investment. Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend. Labour market indicators continue to be somewhat mixed, but are consistent with a modest pace of expansion in employment in the near term.’

Analysts suggest that, with Thursday’s Bank of England monetary policy decision fast approaching, the short to medium term outlook for the Pound Sterling Australian Dollar exchange rate is now firmly negative.

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