Pound Australian Dollar Exchange Rate News: GBP/AUD Muted as Ramsden Warns BoE too Optimistic on Grow

May 30, 2019 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Muted as Ramsden Warns BoE too Optimistic on Grow

Pound (GBP) Exchange Rates Flat Following Ramsden Comments

The Pound (GBP) was rangebound against the Australian Dollar (AUD) and the majority of its other peers on Thursday as markets reacted to a speech by Bank of England (BoE) Deputy Governor Dave Ramsden.

Speaking in Scotland, Ramsden suggested that the BoE may have been a bit too optimistic with its recent growth forecasts as he warned that investment and productivity are both at risk of undershooting expectations this year.

Ramsden said:

‘Relative to the best collective judgement expressed in the MPC’s central forecast I am ... a little more pessimistic on GDP growth than my colleagues on the MPC.’

This comes after the BoE revised its growth forecast from 1.2% to 1.5% at a policy meeting held at the start of May.

However is wasn’t all doom and gloom from Ramsden as he suggested that than orderly Brexit would likely result in the BoE needing to hike interest rates.

Ramsden added:

‘If we get a smooth Brexit with a transition deal… I expect growth to pick up, leading to excess demand and building domestic inflationary pressure, so that further monetary tightening is appropriate to maintain monetary stability.’

Of course this depends on the UK actually securing a deal, something which at this time appears far from certain, with Ramsden warning a no-deal Brexit would have ‘large negative economic effects’ for the UK.

Australian Dollar (AUD) Exchange Rates Steady despite Slump in Investment

Meanwhile, the Australian Dollar (AUD) remained fairly resilient on Thursday despite data showing that domestic investment slumped at the start of 2019.

According to data published by the Australian Bureau of Statistics (ABS), private sector investment unexpectedly contracted in the first quarter, slumping from 1.3% to -1.7% and falling short of the 0.5% expansion which had been forecast.

The figures revealed that investment fell across the board, with all the industries surveyed reporting that investment dried up at the start of the year.

Economists suggest that this could have a negative impact on Q1 GDP as investment feeds directly into growth.

While the lacklustre investment figures didn’t appear to have negatively impacted the Australian Dollar on Thursday, analysts warned that the ‘Aussie’ is likely to struggle to hold its ground in the coming months.

According to the FX strategy term at ANZ the ‘Aussie’ is likely to face substantial weakness through the remainder of 2019 as external and domestic pressures bite.

ANZ’s Daniel Been writes:

‘With trade tension escalating and the likelihood of a resolution dimming, we think the external environment will shift from being an offset to soft domestic conditions to becoming a headwind.

‘This means both the domestic and external stories are pointing to more substantial weakness for the AUD in 2019.’

GBP/AUD Exchange Rate Forecast: UK Politics to Put Dampener on Sterling Sentiment?

Looking ahead, any upside in the Pound Australian Dollar (GBP/AUD) exchange rate is likely to remain limited over the coming weeks as UK political jitters weigh on sentiment.

As Conservative leadership candidates gear up for the upcoming race to replace Theresa May as PM, GBP investors are growing increasingly wary that the risks of a no-deal Brexit are likely to rise if a hardline Brexiteer emerges victorious.

Meanwhile AUD investors are likely to now turn their attentions towards the Reserve Bank of Australia’s (RBA) upcoming policy meeting, amid growing speculation that the bank will cut interest rates this year.

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TAGS: Pound Australian Dollar Forecasts