The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate weakened by nearly 1% on Wednesday to trade in the region of 1.901 as Australian inflation data beat forecasts.
RBA Rate Cut Less Likely
Inflation in Australia fell below the 2% level for the first time in more than two years in the final quarter of 2014. The drop was down to falling oil prices and cheaper prices at petrol stations.
According to the Australian Bureau of Statistics, Consumer Price Inflation (CPI) rose by 0.2% in the final quarter of last year, the figure was below economist expectations for a rise of 0.3%. Inflation had risen by 0.5% in the third quarter.
On an annual basis however, CPI rose by 1.7%, a figure that was just below the 1.8% forecast by economists.
Despite the headline figure showing a drop the Australian Dollar surged as the core inflation figure, which excludes volatile items, rose by 0.7%.
Economists had been expecting a rise of 0.5%.
‘It was a huge shock to markets, especially when there’s been so much conjecture about whether the Reserve Bank would cut rates at its February meeting. Markets have taken this as a clear sign that this is off the table, underlying inflation remains firmly in the lower end of the RBA’s target band and on the back of that strong jobs number we had earlier in the month. It certainly seems that there is no desperate imperative for the RBA to cut rates,’ said Steven Dooley, currency strategist at Western Union Business Solutions.
US Federal Reserve Meeting in Focus
With nothing in the way of market moving UK data due today economist attention is now fixed upon this evenings US Federal Reserve policy meeting. Any sign that Fed policy makers are considering postponing an interest rate hike to late this year or early 2016 will likely send the ‘Aussie’ climbing against the Pound, US Dollar and other major currency peers.
Traders will also be keeping an eye on the Reserve Bank of New Zealand’s policy interest rate decision, which is due tonight.
The bank is not expected to adjust its rates but with inflation, falling right across the globe because of tumbling oil prices a surprise rate cut should not be completely ruled out.
Sterling could see some movement on Thursday if the latest house price data comes in worse than forecast.
