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Pound Australian Dollar (GBP/AUD) Exchange Rate Falls on Patient RBA Monetary Stance

August 9, 2019 - Written by John Cameron

GBP/AUD Exchange Rate Sinks on Patient RBA Statement

The Pound Australian Dollar (GBP/AUD) exchange rate fell today, leaving the pairing trading around AU$1.776 despite comments from the Reserve Bank of Australia (RBA) Governor Philip Lowe this morning, who said that it was ‘possible’ that interest rates could fall to 0%.

Dr Lowe commented:

‘Globally, if all central banks go to zero, then we'd have to consider that as well… I think the focus would be on trying to reduce the risk-free interest rate. If circumstances warranted it we could take action to lower the risk-free rates further out along the time spectrum.’

The Australian Dollar has instead benefited from the RBA’s note of patience in its monetary policy statement today.

David Plank, an Economist at ANZ, said:

‘We think another rate cut this year is inevitable. But it appears the Board wants to see whether the stimulus elicits more of a response than expected. With little concrete data available on this by September, an October rate cut seems more likely. But every month is live.’

Also, as China is Australia’s closest trading partner, today’s publication of the Chinese inflation figures for July, which rose above forecast, have also boosted market confidence in the risk-averse Australian Dollar.

GBP/AUD Exchange Rate Falls as UK GDP Contracts in Second Quarter

The Pound (GBP) fell today following the publication of the flash GDP figures for the second quarter, which contracted to a worse-than-expected -0.2%.

Month-on-month figures for the second quarter also fell below forecast, shrinking from 1.8% to 1.2%.

Rob Kent-Smith, the Head of GDP at the Office for National Statistics, commented:

‘Manufacturing output fell back after a strong start to the year, with production brought forward ahead of the UK's original departure date from the EU… [T]he often-dominant service sector delivered virtually no growth at all.’

UK manufacturing production also fell from 1.4% to -0.2%, which has left some Sterling traders concerned over a possible recession for the UK economy in the near-term.

GBP/AUD Outlook: UK Unemployment Data and Brexit in Spotlight

‘Aussie’ traders will be awaiting Monday’s speech by Christopher Kent, the Assistant Governor at the RBA.

Any signs of dovishness about the Australian economy could clip some of the Australian Dollar’s gains.

Meanwhile, Sterling traders will be awaiting Tuesday’s UK ILO unemployment rate figures for June, which are expected to hold steady at 3.8%.

Monday will also see the publication of the UK’s average earnings figures for June.

The GBP/AUD exchange rate is likely to remain volatile next week, with Brexit fears rising as negotiations between the UK and the EU continue to show signs of breaking down.

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