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GBP/AUD Exchange Rate Hits Half-Month-Worst Following Reserve Bank of Australia Decision

November 5, 2019 - Written by Frank Davies

Despite some weak Australian retail sales data at the beginning of the week, Australian Dollar investors were relieved by a fairly neutral tone from the Reserve Bank of Australia (RBA) today, knocking the British Pound to Australian Dollar (GBP/AUD) exchange rate down as the ‘Aussie’ advanced. The Pound’s movement has remained volatile and narrow, as markets await UK election developments and brush over the latest UK data.

Could GBP/AUD be in for yet another week of losses? GBP/AUD opened last week at the level of 1.8802 and trended lower for most of the week before eventually closing at the level of 1.8716.

GBP/AUD has continued to see downside movement since markets opened this week as well, and this morning the pair has slumped around half a cent due to the Australian Dollar’s gains.

At the time of writing, GBP/AUD is trending close to lows of 1.8603, which is the worst level for the pair in 3 weeks - since mid-October.

GBP Exchange Rates Lack Drive on Election Uncertainty Even as PMIs Beat Forecasts

The Pound continued to be driven by movement in other major currency this week, as uncertainties ahead of next month’s UK election left investors hesitant to make big moves on the British currency.

Markets are currently predicting that the ruling Conservative Party will win the election and be able to push its Brexit plan through UK Parliament.

However, with over a month of campaigning still ahead, a wide number of potential outcomes are still seen as possible. This is making investors hesitant to buy the Pound, though hopes for a no-deal Brexit to be avoided have meant that Sterling has kept much of its recent gains.

Still, with election uncertainties dominating the Pound outlook, UK economic news has only had a limited impact on the British currency.

Today saw the publication of Britain’s October services PMI. The data showed that Britain’s key services sector avoided a feared contraction and instead printed at a stagnant 50.0.

The data was not enough to help the Pound advance, amid ongoing concerns about how Brexit uncertainties are hurting Britain’s economic activity. According to Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply:

‘The sector’s main difficulties are largely of Brexit’s making and with another deadline comes more indecision and delay. Businesses are putting off their investments for happier times and consumers are saving their pennies in case rising costs have a more severe impact on their daily lives.’

AUD Exchange Rates Jump as Reserve Bank of Australia (RBA) Avoids Dovish Stance

Following yesterday’s highly disappointing Australian retail sales results, investors had briefly been more concerned that the Reserve Bank of Australia (RBA) would be pressured into taking a more dovish stance on Australian monetary policy.

However, the RBA showed no surprise shifts in its November policy decision overnight, and continued to maintain its previous, cautiously neutral outlook.

As was widely expected, the RBA left Australian monetary policy frozen. Notably however, the bank indicated that it would also leave rates frozen in December, and may not be forced to cut interest rates again until early 2020.

The news eased market concerns that poor Australian data and the US-China trade war could pressure the RBA to cut rates even lower.

Bets of a December rate cut from the RBA lightened following the news. According to Bill Evans, Analyst at Westpac:

‘For us, the most important aspect of the Governor’s November Decision Statement was the signalling around prospects for a cut in December. It has always been our view that policy would be unchanged in November and December, but when market pricing reached 50% for November, December pricing was around 90%.’

GBP/AUD Exchange Rate Forecast: Australian Trade and Bank of England (BoE) Ahead

The Pound to Australian Dollar exchange rate’s movement has been driven largely by Australian Dollar strength this week so far, and this is likely to continue in the coming days.

While the Bank of England (BoE) will hold its own November policy decision on Thursday, the decision is perceived as being unlikely to have a significant impact on Britain’s outlook or Sterling.

The bank is expected to avoid any notable policy signals amid election and Brexit uncertainty. The Pound would only move if the bank takes a surprising tone on policy or Britain’s outlook.

As a result, GBP/AUD investors will remain focused on upcoming Australian data, such as tomorrow’s construction PMI data from AIG, followed by trade balance data on Thursday.

The trade balance could be particularly influential for the Pound to Australian Dollar exchange rate as it will give investors a better idea of how Australia’s economy is performing amid the US-China trade war.
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