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GBP to AUD Exchange Rate Near 3-Month-Best on RBA Interest Rate Cut Speculation

January 24, 2019 - Written by David Woodsmith

While the Pound slipped versus most major currency rivals yesterday, the British Pound to Australian Dollar (GBP/AUD) exchange rate was able to keep advancing. Investors sold the Australian Dollar in reaction to some mixed Australian job market stats, as well as speculation that the Reserve Bank of Australia (RBA) was becoming more likely to cut Australian interest rates.

Since opening this week at the level of 1.7955, GBP/AUD has seen significant gains thanks to Brexit speculation and Australian Dollar weakness. On Thursday morning, GBP/AUD touched on a three month high of 1.8409 before slipping slightly and trending closer to the level of 1.8360 at the time of writing.

Investors were hesitant to keep buying GBP/AUD even higher, as investors sold the Pound from its best levels following this week’s rally on Brexit news.

Weakness in the Australian Dollar prevented GBP/AUD from falling further from its weekly best.

GBP Exchange Rates Steady Following Wednesday Surge

Some investors opted to sell the Pound from its best levels on Thursday, following a bullish session on Thursday when the British currency sustained big gains against most of its major currency rivals.

Investors piled into Sterling on speculation that Britain’s opposition Labour Party was willing to support legislation that would delay the formal Brexit date in order to prevent a No-deal Brexit from becoming reality.

While a delay to the formal Brexit date of 29th March would not rule out the eventual possibility of a No-deal Brexit, it would still give investors and UK politicians more breathing room over how the Brexit process should unfold next.

According to Charalambos Pissouros, Senior Market Analyst at JFD Brokers:

‘The driver behind the latest recovery in the pound has been expectations that a no-deal withdrawal can be avoided, and yesterday’s headlines encouraged investors to add to those bets,’

Investors sold the Pound back slightly from its best levels on Thursday, as the possibility of a No-deal Brexit remained and there was still no consensus among analysts how exactly the Brexit process would unfold.

AUD Exchange Rates Slump on Australian Job Stats and Reserve Bank of Australia (RBA) Speculation

Most major currencies climbed versus the Pound on Thursday, but a combination of mixed Australian data and Central Bank speculation left the Australian Dollar tumbling throughout the day.

Australia’s December job market results were published during Thursday’s Asian session. While the employment change figure was better than expected, the participation rate unexpectedly slipped from 65.7% to 65.6%. This was the cause of the drop in the unemployment rate to 5.0%.

Australian full time employment also fell -3k.

Perhaps the primary cause of Australian Dollar weakness throughout the day though, was the rise in speculation that the Reserve Bank of Australia (RBA) could be closer to cutting interest rates than hiking them.

The National Bank of Australia (NAB) joined other banks in hiking Australian mortgage rates, making investors concerned that the RBA could cut interest rates to balance things out. According to Sean Keane from Triple T Consulting:

‘The housing correction has the potential to crimp confidence and trigger a contraction in domestic consumption,

This is a scenario the RBA has long feared as it would herald a slowdown in GDP, a reduction in fiscal headroom, an uptick in unemployment.’

GBP/AUD Exchange Rate Forecast: Political Developments in Focus

As no notable Australian data will be published tomorrow, and Britain’s distributive trades stats from CBI are unlikely to be particularly influential, the Pound to Australian Dollar exchange rate is likely to be driven by political developments until markets close for the week.

Of course, Brexit speculation has been the primary cause of Pound movement this week so any surprising Brexit developments or shifts in sentiment are likely to be influential for Sterling.

Meanwhile, the Australian Dollar could be driven more by US political news, US-China trade tensions and global risk-sentiment after investors digest the latest Reserve Bank of Australia (RBA) interest rate cut bets.

If the US government shutdown shows any signs of progress, the relatively risky Australian Dollar could benefit from higher risk-sentiment in markets.

Pound to Australian Dollar exchange rate investors are also highly anticipating next week, when UK Parliament will hold its next debate on the Brexit plan and Australia’s Q4 inflation rate will be published.
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