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Pound Australian Dollar (GBP/AUD) Exchange Rate Sinks as RBA Takes a Wait-and-See Stance on Monetary Policy

August 20, 2019 - Written by John Cameron

GBP/AUD Exchange Rate Falls as US-China Trade Developments Remain in Focus

The Pound Australian Dollar (GBP/AUD) exchange rate fell by -0.5% today. This left the pairing fluctuating around AU$1.786 after the Reserve Bank of Australia’s board reiterated its wait-and-see on monetary policy going forward.

The board’s minutes also suggested a neutral approach:

‘Having eased monetary policy at the previous two meetings, the board judged it appropriate to assess developments in the global and domestic economies before considering further change to the setting of monetary policy.’

However, as the Australian central bank simply reiterated its stance, this has buoyed market confidence in the ‘Aussie’ on relief of the bank’s markedly measured approach during ongoing US-China trade tensions and domestic economic concerns.

US-China trade tensions have worsened following US President Donald Trump’s comment that a trade deal would be unlikely if Beijing uses violence against the ongoing riots in Hong Kong.

People’s Daily, a Communist Party mouthpiece, retaliated:

‘In the face of political intimidation, we not only dare to say no, but also take countermeasures.’

As China is Australia’s largest trading partner, this has put pressure on sentiment in the Australian Dollar today.

However, a return of sentiment boosted the ‘Aussie’, with Peter Cavanaugh, a Senior Client Advisor at Bancorp Treasury Services, saying:

‘There’s a slight improvement in sentiment and a hope that the China-US trade talks aren’t damned to eternity.’

GBP/AUD Exchange Rate Sinks as No-Deal Brexit Fears Rise over Irish Backstop Debate

The Pound (GBP) has continued to struggle today as Prime Minister Boris Johnson has continued to insist on the removal of the Irish backstop from future negotiations with the European Union. This has further heightened the likelihood of a no-deal Brexit on October 31.

Mr Johnson said on his visit to Cornwall yesterday:

‘We will be ready to come out on October 31, deal or no deal. Now of course our friends and partners on the other side of the Channel are showing a little bit of reluctance at the moment to change their position.’

EU diplomats said that this was a ‘clear attempt’ to kill off negotiations with the bloc.

Tony Lloyd, the shadow Northern Ireland Secretary, commented:

‘Whichever Brexit outcome he pursues, whether it’s a disastrous no deal or this fantasyland wishlist, Boris Johnson clearly has no qualms about putting jobs, rights, prosperity or peace in Northern Ireland at risk.’

GBP/AUD Outlook: ‘Aussie’ Could Rise on Improving August PMI Figure

Australian Dollar investors will be looking ahead to tomorrow’s release of the flash Commonwealth Bank Manufacturing Composite PMI for August.

Any signs of improvement could lessen the likelihood of an aggressive rate cut from the RBA, thus further boosting the AUD/GBP exchange rate.

Meanwhile, Sterling traders will be awaiting tomorrow’s publication of the UK public sector net borrowing figure for July, which is expected to ease from £6.50 billion to £-2.65 billion.

The GBP/AUD exchange rate will likely remain subdued for the rest of this week as UK-EU negotiations continue to show signs of breaking down over the Irish backstop.

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