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Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Falls as RBA Slash Interest Rates to Record Low 1%

July 2, 2019 - Written by John Cameron

Pound Australian Dollar (GBP/AUD) Exchange Rate Slumps as RBA Slash Interest Rates

The Pound Sterling Australian Dollar (GBP/AUD) exchange rate slumped and the pairing is currently trading at an inter-bank rate of AU$1.8053.

On Tuesday, the Reserve Bank of Australia (RBA) slashed interest rates to a record low 1%.

This is the lowest rate on record and comes just a month after bank revealed they were cutting the cash rate by 0.25 percentage points.

This is the first back-to-back interest rate cut since 2012, however this could do little to stop the ‘Aussie’ rise against the Pound.

In the RBA’s interest rate statement from Governor Philip Lowe, the bank states that the easing will ‘support employment growth and provide greater confidence that inflation will be consistent with the medium-term target.’

Commenting on the outlook for the Australian economy, the RBA noted:

‘The outlook for the global economy remains reasonable. However, the uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy are tilted to the downside.’

Australian Dollar (AUD) Rises as RBA’s Lowe Highlights Risks to Global Economy

Later this morning, Governor of the RBA, Philip Lowe gave a speech at Darwin community dinner, and addressed the bank’s interest rate cut.

In his speech, Lowe stated:

‘It is important that we think about the task ahead holistically. Monetary policy does have a significant role to play and our decisions are helping support the Australian economy. But, we should not rely on monetary policy alone. We will achieve better outcomes for society as a whole if the various arms of public policy are all pointing in the same direction.’

However, Lowe also highlighted the risk of US-China trade tensions and stated:

‘At the same time, though, we need to watch global developments very closely. Over recent times, the uncertainty generated by the trade and technology disputes between the United States and China has made businesses in many countries nervous about investing. Many are preferring to sit on their hands, rather than commit to capital spending that is difficult and costly to reverse. The result is less international trade and a weakening trend in investment globally. If this continues for too much longer, the effects on economic growth are likely to be significant. For this reason, the risks to the global economy remain tilted to the downside.’

However, this could do little to dampen sentiment in the risk-sensitive ‘Aussie’.

Sterling (GBP) Falls on Disappointing UK Construction Data

Sterling remained under pressure against the Australian Dollar on Tuesday as data revealed the UK construction PMI slumped further than forecast.

The construction PMI plummeted from 48.6 in May to 43.1 in June.

The data showed that construction output fell at the steepest rate since April 2009 which weighed on GBP.

This was the second consecutive month that business activity fell and new orders fell as political uncertainty dented client confidence.

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

‘Purchasing activity and new orders dropped like a stone in June as the UK construction sector experienced its worst month for a decade.

‘This abrupt change in the sector’s ability to rise the highs and lows of political uncertainty shows the impact has finally taken its toll as new orders dried up and larger contracts were delayed again. The pain of Brexit indecision was felt across all three sub-sectors but the previously resilient housing sector suffered the fastest drop in three years which is frankly worrying news.’

Pound Australian Dollar Outlook: Will Disappointing Aussie Building Permits Weigh on AUD?

The Australian Dollar (AUD) could slide against the Pound (GBP) following the release of the Australian building permits.

If Aussie building permits slump further than forecast in May, the 'Aussie' Dollar could slump.

Meanwhile, Sterling could fall on Wednesday following the release of the UK services PMI.

If the services sector suffers a steep decline as the construction and manufacturing sectors have, the Pound Australian Dollar (GBP/AUD) exchange rate could slide.

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