Pound Australian Dollar (GBP/AUD) Exchange Rate Steadies as RBA Slashes Interest Rate

June 4, 2019 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Steadies as RBA Slashes Interest Rate

GBP/AUD Exchange Rate Rangebound as RBA Announces First Cut Since 2016

The Pound Australian Dollar (GBP/AUD) exchange rate is steady today and is currently trading around AU$1.8147 on the interbank market.

The Australian Dollar (AUD) failed to make any gains following the publication of the Reserve Bank of Australia’s (RBA) interest rate decision, which was slashed to 1.25% against its previous 1.50% – its first cut since August 2016.

Shane Oliver, Head of Investment Strategy at AMP Capital, took a dovish interpretation, saying:

‘The RBA’s latest rate cut is aimed at heading off a further slowing in growth which would threaten higher unemployment and lower for longer inflation.’

‘More rate cuts are likely to be needed ultimately taking the cash rate to a low of 0.5% next year.’

The Governor of the RBA, Philip Lowe, did not surprise many analysts who had already forecast the cut. He said:

‘Today’s decision to lower the cash rate will help make further inroads into the spare capacity in the economy.’

GBP/AUD Exchange Rate Flat as UK Construction Contracts

The Pound, meanwhile, steadied against the ‘Aussie’ following the worse-than-expected like-for-like retail sales for May, which fell by -0.3%.

The forecast, however, was a healthier 0.9% increase.

Today also saw the publication of the UK Markit construction PMI figures for May, which contracted to 48.6 despite the forecast of a 50.5 stasis.

Duncan Brock, a Group Director at the Chartered Institute of Procurement and Supply, said:

‘[O]ptimism about the strength of the sector’s future was the lowest since October 2018. Policymakers will need to pull a large rabbit out of the hat, and fast, to improve these difficult conditions and prevent a further entrenchment of gloom and contraction this summer.’

Meanwhile, headlines have been focusing on US President Donald Trump’s state visit to the UK, while Theresa May – in one of her final acts before she steps down as leader of the Tories – commented on the possibility of a US-UK trade deal post-Brexit.

However, with uncertainty surrounding both Brexit and the future leadership of the Conservative Party, many Sterling traders have remained sensibly cautious.

AUD/GBP Exchange Rate Steadies as Australian Retail Sales Ease

The Australian Dollar wasn’t aided by the publication of the Australian retail sales figures for April, which fell below the consensus of a 0.2% increase to -0.1%.

Matthew Hassan, the Senior Economist at Westpac Bank, said:

‘The April retail update is clearly on the soft side, marking a weak start to the June quarter and with some worrying signs that wealth effect drags may be intensifying.’

Today also saw the publication of the current account balance figures for the first quarter, which also took a disappointing fall at -2.9bn.

GBP/AUD Forecast: Sterling to Remain Vulnerable to Brexit and Leadership Uncertainty

‘Aussie’ traders will be looking ahead to tomorrow’s publication of the Australian GDP figures for the first quarter, and with the expected increase, this could buoy market confidence in AUD.

Tomorrow will see the Chinese Caixin services PMI figures for May, which are expected to ease.

This may weaken the AUD/GBP exchange rate, as the Australian economy relies heavily on economic health in China, its closet trading partner.

The Pound Australian Dollar exchange rate will remain sensitive to political developments, however, and with no clear direction on the UK’s future with the EU, and the Conservative leadership remaining unclear, it is unlikely we will see Sterling make any large gains.

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TAGS: Pound Australian Dollar Forecasts