Pound Sterling Aussie Dollar Outlook Hit by RBA Stevens? Comments

August 10, 2016 - Written by Tim Boyer

STORY LINK Pound Sterling Aussie Dollar Outlook Hit by RBA Stevens? Comments

Australian Dollar Gains on Pound Sterling Following RBA Rate Cut Comments

The Australian Dollar (currency : AUD) has enjoyed sustained gains against the Pound Sterling (currency : GBP) during last night’s Asian session thanks to an intervention from a somewhat unexpected source. Reserve Bank of Australia (RBA) Governor Glenn Stevens is reaching the end of his tenure as the chief of Australia’s lender of the last resort and the farewell speech which he delivered last night was expected to pass without any great drama.

However, Stevens took the opportunity to go out with a bang by issuing Australia’s newly re-elected Prime Minister Malcolm Turnbull with some advice on his government’s fiscal policy. Stevens pointedly suggested that Australia’s politicians now needed to ‘dial up the growth we need’ and went on to question the efficacy of further domestic interest rate cuts in firing up the local economy.

GBP/AUD Exchange Rate Trending at Over Two-Year Low

Stevens’ call for Australia’s government to take on increased levels of debt to fund large-scale infrastructure projects and boost growth raised the spectre of Franklin D. Rosoevelt’s expansionary ‘New Deal’ policies of the 1930s which dragged America out of the post-1929 Wall Street Crash economic funk which it has entered. Steven’s called for the same Keynesian-style pump-prime spending for modern-day Australia with one caveat, noting that he was, ‘not advocating an increase in deficit financing of day-to-day government spending.’

However, he went on to qualify this statement by suggesting that there is now a strong, ‘case for governments being prepared to borrow for the right investment assets – long-lived assets that yield an economic return – does not extend to borrowing to pay pensions, welfare and routine government expenses, other than under the most exceptional circumstances.’

Stevens rounded it up by stating that,
‘The point I am trying to inject here is simply that popular debate in Australia about government debt and how we limit or reduce it seems so often to be conducted while largely ignoring the size of private debt. Foreign visitors to the Bank over the years have tended to raise questions about household debt much more frequently than they have raised questions about government debt.’

Pound Sinks to Low of 1.6856, Are Further Losses Ahead?

The suggestion from Stevens that any further loosening of its monetary policy from the RBA may prove futile was enough to send the Pound Australian Dollar exchange rate down to as low as 1.6856 GBP AUD during this morning’s European equities session. Analysts forecast that given the Bank of England’s current ultra-loose monetary policy stance, there may be a long way further down for the pair to go in the short-to-medium term.

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