GBP/AUD Exchange Rate Advances Today ahead of Forecast Bank of England (BoE) Interest Rate Freeze

May 9, 2018 - Written by Toni Johnson

STORY LINK GBP/AUD Exchange Rate Advances Today ahead of Forecast Bank of England (BoE) Interest Rate Freeze

On Tuesday’s trading session, the Pound to Australian Dollar exchange rate opened in the region of 1.8037 and closed higher around 1.8194.

This appreciation was partly down to hopes for a possible softening of the final Brexit deal, as well as a mixed reaction to the 2018 Australian Federal Budget.

In the former case, Sterling received support when peers voted in favour of the UK remaining part of the EU customs union.

This was seen as a way of opening the door to a more moderate Brexit, compared to a ‘hard Brexit’ in which the UK would be forcibly removed from a number of EU agreements.

In the case of the customs union, potential benefits of continued membership include an open Irish border, which would prevent time-consuming border checkpoints being implemented.

On the other side of the pairing, the Australian Dollar did not see universal support when the 2018 Federal Budget was announced.

These plans revealed that the government intends to cut taxes for low and middle-income earners, in addition to cracking down on illegal financial activities.

The planned tax cuts for lower earners were met with criticism from some quarters, when it was calculated that some cuts would only be worth around AU$10 a week.

Additional concerns were caused by analysis about the importance of Australia’s mining industry.

Experts at the Australian Treasury estimated that a $10 shift in the price of iron ore, a key Australian export, could lead to -$5.5bn decrease in nominal AU GDP over 2018-2019.

This finding has been problematic for budget-watchers, as it means that Australian growth forecasts could be missed by a sizable margin if iron ore prices are unsupportive.

Further budgetary scepticism came from Capital Economics economists Paul Dales and Kate Hickie, who said:

‘We’re not convinced the economy will live up to the Treasurer’s expectations as wage growth will probably remain low and the housing market will probably weaken further.

‘If so, then the budget won’t return to surplus as soon as expected and net debt will remain higher for longer.

‘That means whoever is Treasurer after next year’s election will have to acknowledge that the fiscal outlook is not as rosy as [Scott] Morrison has suggested.’

GBP/AUD Exchange Rate Static as Lords Back EEA after Brexit

Today’s Pound to Australian Dollar (GBP/AUD) exchange rate movement has been limited, although the pairing still remains near the best rate since 1st May.

As with Tuesday, there has been a limited amount of UK economic news to influence the GBP/AUD exchange rate.

In a similar situation to Tuesday, peers in the House of Lords have created another Brexit headline by voting for the UK to remain in the European Economic Area (EEA) after parting with the EU.

Although both the customs union and EEA arrangement motions might be voted down by MPs when they reach the House of Commons, this news has still raised hopes for a less drastic Brexit process.

AUD/GBP Exchange Rate Steady as Business Leaders Analyse 2018 Budget

There has been little fresh Australian economic data out today, which has left the Australian Dollar trading closely against the Pound.

Among those reacting to the spending plans has been Reckon Managing Director Sam Allert, who has stated:

‘Any further support that can be afforded to small businesses will go a long way in ensuring they remain profitable and thrive.

‘The massive electricity price hike over the past several years has been crippling many small businesses across the country.

‘If the government doesn’t step in to address the issue, it will have huge implications on small business growth as capital that could have gone into hiring new talent, investing in new technology and expanding their venture, would now have to go into solely ensuring they have an operational work space.'

GBP/AUD Exchange Rate Forecast: Pound to Australian Dollar Volatility Incoming on BoE Interest Rate Decision

This week has been building up to Thursday’s Bank of England (BoE) interest rate decision, which is currently forecast to show no adjustment from 0.5%.

Such a result could trigger a Pound to Australian Dollar (GBP/AUD) exchange rate decline, as it would disappoint GBP traders who are still holding out for a rate hike up to 0.75%.

Australian Dollar movement may be caused by home loans data released on Friday – if this shows growth instead of the forecast -2% decline then the Australian Dollar could advance against a potentially already-weakened Pound.

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