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GBP AUD Exchange Rate Soars as RBA Warns of Pressures on the Australian Economy

August 1, 2017 - Written by Toni Johnson

The Pound Australian Dollar (GBP AUD) exchange rate jumped last night as RBA voted to hold interest rates at a record low of 1.5%.

Australian Dollar’s (AUD) Slumps Following RBA Rate Decision

The ‘Aussie’ initially rallied overnight on Monday as an unexpected rise in Australia’s latest Manufacturing PMI and a 7% jump in iron ore markets helped to drive market sentiment higher.

In regards to the Manufacturing index which rose from 55.0 to 56.0 in July, Ai Group who compiled the data said that there were several positive factors that lead to the rise, saying;

‘Manufacturers cited increased demand from construction, mining — possibly reflecting commodity price increases — and agriculture for locally manufactured construction materials, machinery and equipment.’

However the uptick in the Australian Dollar proved to be short lived last night following the conclusion of the Reserve Bank of Australia’s (RBA) latest monetary policy meeting.

As had been widely predicted by economists the central bank voted to again leave interest rates on hold in their August meeting.

While this had been largely priced in by investors, the RBA’s warning that the ‘Aussie’s recent strength has been placing pressure on the Australian economy caused the antipodean currency to relinquish nearly all of its overnight gains.

The Bank said in its accompanying statement;

‘The Australian dollar has appreciated recently, partly reflecting a lower US dollar.’

‘The higher exchange rate is expected to contribute to subdued price pressures in the economy. It is also weighing on the outlook for output and employment.’

The RBA also remained fairly neutral in its outlook for future growth as it said ‘forecasts for the Australian economy are largely unchanged’, which would suggest that the bank’s quarterly Statement on Monetary Policy (SoMP) on Friday will not deviate greatly from the RBA previous forecast of 3% annual growth.

Pound (GBP) Bolstered by Manufacturing PMI

The Pound found further strength this morning as the UK released its latest factory figures.

According to data compiled by IHS Markit Britain’s Manufacturing PMI jumped from 54.2 to 55.1 in July, rallying from a notable drop in activity in June and beating expectations of only a 0.2% rise.

The jump appeared to be largely driven by increased foreign demand for British goods as the weaker Pound makes good produced in the UK more attractive to overseas buyers.

Rob Dobson, Director at IHS Markit said;

‘UK manufacturing started the third quarter on a solid footing. The headline PMI signalled a growth acceleration for the first time in three months during July, as new order intakes were boosted by a near survey-record increase in new export business. Although the exchange rate remains a key driver of export growth, manufacturers also benefitted from stronger economic growth in key markets in the euro area, North America and Asia-Pacific regions.’

GBP AUD Forecast: BoE Rate Decision Ahead

The RBA is not the only central bank making a rate decision this week, as the Bank of England (BoE) also gathers on Thursday for its latest monetary policy meeting, with analysts predicting that the bank’s Monetary Policy Committee (MPC) will vote to leave interest rates unchanged once again.

However following a number of hawkish comments from various BoE policy makers in recent weeks, investors are likely to focus on the tone of Governor Mark Carney accompanying statement, with the Pound likely to rally if he signals that the bank is likely to tighten its monetary policy in the near future.

Meanwhile the GBP AUD exchange rate may find further strength on Thursday with the release of Australia’s latest Trade Balance figures, with economists predicting that the nation trade surplus will have slumped from AU$2.47bn to AU$1.8bn in June following a dip in commodity prices at the end of the second quarter.

Current Interbank Exchange Rates

At the time of writing the GBP AUD exchange rate was trending around 1.6539 and the AUD GBP exchange rate was trending around 0.6044.

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