Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Rises on Clear Sign RBA Will Slash Interest Rates

May 21, 2019 - Written by John Cameron

STORY LINK Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Rises on Clear Sign RBA Will Slash Interest Rates

Pound Australian Dollar (GBP/AUD) Exchange Rate Rallies on a Dovish RBA

The Pound Sterling Australian Dollar (GBP/AUD) exchange rate rose and the pairing is currently trading at an inter-bank rate of AU$1.8466.

The Australian Dollar fell against Sterling as the Reserve Bank of Australia (RBA) became increasingly dovish.

RBA Governor Philip Lowe stated that the bank will ‘consider the case for lower rates’ during its June meeting.

This admission is the clearest signal that the bank will cut interest rates for the first time since August 2016.

In his speech, Lowe suggested that only a further fall in unemployment could be enough to boost inflation.

Meanwhile, the Commonwealth Bank has become the last of Australia’s big four banks to predict a near-term RBA rate cut which likely weighed on the 'Aussie'.

Australian Dollar (AUD) Slides as OECD Slashes Global Growth Forecast

On Tuesday, the Organisation for Economic Cooperation and Development (OECD) slashed global growth forecasts.

It is now predicted that growth will rise by 3.2%, the slowest pace since 2016.

The OECD also emphasised the risks of ongoing trade tensions between the US and China which likely weighed on the ‘Aussie’.

If tensions remain unresolved growth in the US and China could be 0.2-0.3% lower by 2021 and 2022.

Sterling (GBP) Rises despite Brexit Uncertainty

Sterling rose against the Australian Dollar despite a fresh wave of Brexit pessimism hitting the UK.

Commenting on this, Neil Mellor, strategist at BNY Mellon said:

‘There’s been an accumulation of disappointments since the start of this month as it’s become clear the talks with Labour had stalled. The possibility of some kind of agreement had generated relative stability since late-February but that’s over now.

‘It’s all much of the same, the uncertainty is what’s doing the damage.’

Further reports suggested that Prime Minister Theresa May will struggle to persuade her Cabinet to back her amended Withdrawal Agreement.

Rejection of May’s deal could lead to the Prime Minister being replaced by a Eurosceptic Tory leader.

This likely weighed on Sterling as it increases chances of a no-deal Brexit, however Sterling was able to rise against the weakened AUD.

Pound Australian Dollar Outlook: Will Disappointing Aussie Construction Data Weigh on AUD?

Looking ahead to the start of Wednesday’s session, the Australian Dollar (AUD) could slide against Sterling (GBP) following the release of the Aussie construction data.

If construction work done during the first quarter unexpectedly contracts, the ‘Aussie’ could slide.

Meanwhile, Sterling could rise following the release of the UK Consumer Price Index (CPI).

If data shows that CPI rose higher than forecast in April, the Pound Australian Dollar (GBP/AUD) exchange rate could rise.

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TAGS: Pound Australian Dollar Forecasts