Pound Sterling Australian Dollar Forecast to Drop in Short Term

Published: Wednesday, 2 December 2015 07:00 BST - Written by David Woodsmith

STORY LINK Pound Sterling Australian Dollar Forecast to Drop in Short Term

GBP to AUD Exchange Rate Saw Worst Rate of 2.0570 Yesterday

The headline risk event in Tuesday’s Asian session saw the Reserve Bank of Australia (RBA) decide to maintain its official interest rate at 2.00% for the seventh month on the trot.

The Australian Dollar (currency : AUD) enjoyed strong support in the wake of the announcement, sending the GBP AUD exchange rate down into the 2.0500s for the first time since early Summer during late trading yesterday.

Hawkish RBA Governor Glenn Stevens Provoke Australian Dollar Uptrend

The burst of buying pressure in favour of the ‘Dollar from Down Under’ was not in itself driven by the RBA policy board’s decision to ‘hold’, but instead by the distinctly hawkish tone which Governor Glenn Stevens struck in his accompanying statement.

The RBA Chief was distinctly go-ahead in his assertion that, ‘while gross domestic product growth has been somewhat below longer-term averages for some time, business surveys suggest a gradual improvement in conditions in non-mining sectors over the past year.’

Competitive Australian Dollar Improving Economic Conditions

Previously, analysts had believed that there was a strong chance that the RBA would be cutting interest rates at least once more in coming months at a time when other central banks, (notably the Bank of England and the US Federal Reserve), are considering an increase.


However, these same analysts are now not so sure; the mood in the camp was summed up by Innes Wilcox of AI Group who commented yesterday that, ‘the more positive conditions are due to the more competitive level of the Australian Dollar; the considerable cost savings and other efficiencies that manufacturers have introduced over recent years; and continuing strong demand from residential construction businesses.’

The implication that the current relative strength of the Australian Dollar is conducive to further economic improvement in Oz takes the pressure off the RBA to further cut rates.

For this reason, many analysts now forecast that the Aussie will stabilise and perhaps improve against the Pound Sterling in the short to medium term.

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TAGS: Australian Dollar Forecasts