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Pound to Australian Dollar (GBP/AUD) Exchange Rate Rises as RBA Negative Interest Rate Fears Weigh on ‘Aussie’

October 19, 2020 - Written by John Cameron

GBP/AUD Exchange Rate Edges Higher as Rising Global Covid-19 Cases Dampen Risk Sentiment

The Pound to Australian Dollar (GBP/AUD) exchange rate rose by 0.3% today, with the pairing currently fluctuating around AU$1.830.

The Australian Dollar (AUD) failed to gain this morning despite signs that China – the world’s second-largest economy – could be on a road to a stronger-than-expected recovery from the Covid-19 pandemic.

However, AUD has been dragged down by growing concerns over further easing from the Reserve Bank of Australia (RBA) amid growing global Covid-19 infections, US political uncertainty, and the ongoing UK-EU Brexit debates.

Richard Franulovich, a currency exchange rate strategist at Westpac, Sydney, commented:

‘The strong prospect of more RBA and RBNZ easing means AUD and NZD will struggle to develop interest rate support, despite their Covid outperformance.’

Australian Dollar (AUD) traders will be awaiting today’s speech from the Reserve Bank of Australia’s (RBA) Assistant Governor Christopher Kent.

Any hints that the RBA could be cutting key rates below a historic low of 0.1% would prove AUD-negative.

RBC economist Su-Lin Ong recently said:

‘We now think that a proper Quantitative Easing (QE) is simply a matter of time and we would not rule out a near-term announcement.

‘This number, combined with the bond purchases it has already done, would be consistent with the size of the initial QE programs of other central banks.’

Pound (GBP) Rises on Hopes of a Brexit Deal

The Pound (GBP) rose against the Australian Dollar (AUD) today on growing hopes that a UK-EU Brexit deal is still possible.

The European Commission’s vice president, Marcos Sefcovic, commented:

‘It has to be a fair agreement for both sides – we are not going to sign an agreement at any cost. The European Union is ready to work until the last minute for a good agreement for both parties.’

As a result, GBP investors have become more optimistic that the UK and the EU could secure a post-Brexit trade deal before the end of the year, despite Prime Minister Boris Johnson’s suggestions of an Australian-style Brexit over the weekend.

Neil Jones, an analyst at Mizuho Bank, London, commented:

‘Weekend developments & headlines is spurring demand for Sterling this morning. There is a growing perception the red lines maybe closing in & raising the chances of a deal. Sterling likes this.’

Today will see a speech from the Bank of England’s Sir Jon Cunliffe, the Deputy Governor for Financial Stability.

Any dovishness about the UK economy – or hints of a possible negative interest rate – would prove GBP-negative.

GBP/AUD Forecast: Could a Brexit Deal Breakthrough Further Boost Sterling This Week?

Australian Dollar (AUD) investors will be looking ahead to tomorrow’s RBA Meeting Minutes.

Again, any hints of a possible negative interest rate or further stimulus would prove detrimental to the ‘Aussie’.

Tomorrow will also see the release of Australia’s latest HIA New Home Sales report for August.

If this falls significantly, then we could see the AUD/GBP exchange rate sink further as concerns for the Australian economy increase.

Furthermore, any signs of rising political uncertainties in America would drag on the risk-averse Australian Dollar.

Pound (GBP) traders will be keeping a close eye on Brexit developments this week.

Any signs that the UK and the EU could compromise on a post-Brexit trade deal would boost the GBP/AUD exchange rate.

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