Pound Sterling (GBP) to Australian Dollar (AUD) Exchange Rate Forecast to Improve?

March 1, 2016 - Written by Minesh Chaudhari

STORY LINK Pound Sterling (GBP) to Australian Dollar (AUD) Exchange Rate Forecast to Improve?

AUD Edges Higher after RBA Hold Overnight Cash Rate

The overnight Asian session brought significant risk events which are forecast to inform price action in the global currency markets today. As anticipated, the Reserve Bank of Australia (RBA) opted to maintain its key lending rate at its current record low level of 2.00%.

RBA Governor Glenn Stevens struck a moderate tone in the accompanying statement, commenting that his, ‘board judged that there were reasonable prospects for continued growth in the economy.’

The RBA Chief went on to predict that, ‘with growth in labor costs continuing to be quite subdued as well, and inflation restrained elsewhere in the world, inflation is likely to remain low over the next year or two.’

Stevens’ suggestion that price rises in Australia will remain subdued into the medium term was taken by investors as a firm signal that Australian interest rates will also remain at rock bottom levels; futures market participants are pricing in a high percentage chance that the RBA will be cutting its key interest rate at least once more before the end of this year. Such an outcome is forecast to hit the Aussie hard.

AUD Exchange Rates to Come Under Further Pressure as Raw Materials Prices Slump

Meanwhile, Steven’s also suggested that the price of raw materials will struggle to recover from the slump which they have endured since their March 2011 peak, observing that, ‘financial markets have once again exhibited heightened volatility over recent months, as participants grapple with uncertainty about the global economic outlook and policy settings among the major jurisdictions. Commodity prices have declined very substantially over the past couple of years. This partly reflects slower growth in demand but also, in some key instances, large increases in supply.’

Such price performance from Commodities market is likely to pile further pressure on the Aussie and last night’s weaker than anticipated survey of China’s manufacturing sector, which bodes ill for Australian mineral exports, adds to the likelihood that raw materials will struggle to recover in 2016.

Analysts had been forecasting a print of 49.4 from the February PMI Manufacturing survey, so the result of 49.0, pointing to an accelerated level of contraction in China’s factory output last month, is expected to cause support for the Aussie to soften in the short to medium term.

Whether or not the RBA opts to adjust interest rates in the near future largely depends on domestic data and global headwinds.

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