Pound Australian Dollar (GBP/AUD) Exchange Rate Soars over 1.5% as RBA Turns Neutral on Rates

February 6, 2019 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Soars over 1.5% as RBA Turns Neutral on Rates

GBP/AUD Exchange Rate Soars as Reserve Bank of Australia Hints at Interest Rate Cut

The Pound Australian Dollar (GBP/AUD) exchange rate soared today by over 1.5% and is currently trading around AU$1.8160 on the inter-bank market.

Sterling (GBP) sky-rocketed against the Australian Dollar (AUD) after the Governor of the Reserve Bank of Australia (RBA), Philip Lowe, said the bank could potentially cut interest rates if income and spending shows any signs of a decline.

Lowe remained particularly dovish, commenting:

‘Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios. Today the probabilities appear to be more evenly balanced.’

This was an unexpected change of tone from Lowe, who previously stated that a cash rate hike was likely, although in an RBA monetary policy statement on Tuesday he began to indicate increasing downside risks for the Australian economy.

Sally Auld, Chief Economist at J.P. Morgan in Australia, commented:

‘Today’s comments by the RBA Governor are a green light for the market to price in cuts with confidence… As the old saying goes, if the RBA aren’t hiking, then they must be easing.’

‘Aussie’ traders will be looking ahead to Australia’s AiG performance of construction index figures for January, with any signs of an increase potentially providing some much needed uplift to the suffering Australian Dollar.

The UK will see no economic data releases today, with most GBP traders focusing on Prime Minister Theresa May as she concludes two days of talks in Northern Ireland.

Pound Australian Dollar (GBP/AUD) Exchange Rate Shoots above 1.5% as UK Braces for BoE Interest Rate Decision

Many GBP traders, are remaining cautious ahead of tomorrow’s Bank of England interest rate decision after yesterday’s poor UK services PMI figures raised concerns about the economy.

Pound investors are also remaining apprehensive about tomorrow when Theresa May is set to meet EC President Jean-Claude Juncker to present her new Brexit demands.

There are rising concerns that the UK could fail to secure a deal with the EU, following previous comments from the EU that it was unwilling to renegotiate the Brexit deal, and with a particular show of stubbornness over the Irish backstop issue.

GBP/AUD Outlook: May and Juncker Brexit Meeting in Spotlight

GBP investors will be awaiting the BoE’s interest rate decision tomorrow, with rates expected to remain at 0.75%, although any dovish comments made during the minutes could see Sterling fall.

Tomorrow will also see Theresa May meet Jean-Claude Juncker: any signs that May’s new Brexit plan will be rejected by the EU will likely see the Pound come under considerable pressure.

With no notable Australian or Chinese data due out tomorrow, ‘Aussie’ traders will be looking ahead to Friday for the publication of the Reserve Bank of Australia’s monetary policy statement, which after the recent comments from Phillip Lowe, is likely to see the GBP/AUD exchange rate rise.

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