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Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Plummets as RBA Interest Rate Holds Steady

February 5, 2019 - Written by John Cameron

Pound Australian Dollar (GBP/AUD) Exchange Rate Sinks on Bullish RBA as UK Optimism Slides

The Pound Australian Dollar (GBP/AUD) exchange rate fell over the course of Tuesday, and is currently trading at an inter-bank rate of AU$1.7884.

The Reserve Bank of Australia (RBA) announced they were keeping interest rates at a steady 1.5%, with the bank remaining confident that it will achieve its inflation target.

The GBP/AUD pairing slid further following the release of the UK’s Markit services PMI, which showed that business activity within the sector stagnated, with Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply noting:

‘The sector has the January blues last month, as employment dropped for the first time in over six years, and new order levels fell into contraction territory.

‘As optimism levels remained at some of the lowest levels since the last recession in 2009, the vice-like grip of Brexit is now taking hold of the sector, making it a very difficult start to the year and leaving little hope for improvement next month.’

Sentiment in Australian Dollar (AUD) Dampened by Largest Fall on Record for Australian Imports

In the early hours of the morning Australia released retail sales figures for December showed that sales had contracted by -0.4%, falling further than forecast.

This kept GBP/AUD exchange rates buoyed ahead of the RBA interest rate decision.

December’s figures showed that Australia recorded its second largest trade surplus, although as imports slumped by over AU$2bn – the largest one-month fall on record.

Imports slid by a huge -6.0% while exports skidded -2.0%, with this steep fall in imports being the main factor causing the record high surplus.

Yesterday: Pound (GBP) Slides as UK Construction Sector Suffers Slowest Rise in Business Activity in Ten Months

The Pound Australian Dollar (GBP/AUD) exchange rate fluctuated over the course of Monday, with sentiment in the Pound hit following the release of the UK January construction PMI.

The PMI showed that the construction sector suffered its slowest rise in business activity for ten months, with employment growth hitting a two-and-a-half year low.

Economics Associate Director at IHS Markit, Tim Moore noted:

‘Staff recruitment slowed to a crawl in January, with construction firms reporting the softest rate of job creation since July 2016. Delays to client decision-making on new projects in response to Brexit uncertainty was cited as a key source of anxiety at the start of 2019.

‘Business expectations for the year ahead slipped to a three-month low and remained subdued in comparison to historic trends in January.’

GBP/AUD Outlook: Will a Hawkish Lowe Strengthen Australian Dollar Sentiment?

Tomorrow, RBA Governor Philip Lowe will deliver his first speech of the year, which will be followed by the RBA’s quarterly statement on monetary policy on Friday. If the RBA maintain a hawkish tone it seems likely that the ‘Aussie’ will continue to rise against the Pound.

As there is a lack of UK economic data releases, Brexit will undoubtedly be the main catalyst for Pound movement.

Tomorrow will see the conclusion of the ‘alternative arrangements’ discussion, and if MPs are unable to agree on how to replace the Irish backstop, we could see the GBP/AUD exchange rate slip further.

The Australian AiG performance of construction index for January is due for release tomorrow evening; if the construction sector continues to contract we could see the Pound take advantage of weakness of the Australian Dollar.

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