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Dovish RBA Forward Guidance to Reverse GBP/AUD Exchange Rate Losses?

Australian Dollar Currency Forecast

GBP/AUD Exchange Rate Undermined by Risk-On Mood

The Pound Australian Dollar (GBP/AUD) exchange rate is retreating from a three-year high at the start of this week’s session, amidst a strong pick-up in market risk appetite.

At the time of writing the GBP/AUD exchange rate is currently trading at around AU$1.8997, having slumped roughly 0.6% from the week’s opening levels.

Australian Dollar’s (AUD) Rally to be Cut Short by Cautious RBA?

While the Australian Dollar (AUD) is enjoying some notable support this morning, the currency looks to face some headwinds later tonight as the Reserve Bank of Australia (RBA) concludes its final policy meeting of 2019.

The general consensus is that the RBA will leave interest rates on hold this month, having implemented three rate cuts in rapid succession earlier in the year.

Instead the focus for AUD investors will be on the RBA’s response to Australia’s recent economic performance as well as its forward guidance for 2020.

This could see the ‘Aussie’ face some pressure overnight if the bank’s policy statement suggests that more monetary easing may be necessary next year.

Economists currently forecast that the bank will cut rates again in February, with the potential for another cut later in the year.

UK Politics to Continue to Dominate the Pound (GBP)?

Meanwhile, with the general election less than two weeks away, UK political headlines will exert even greater influence over the Pound (GBP) in the coming days.

Sterling roared higher last week on the back of a poll suggesting Boris Johnson was on track to secure a convincing majority on 12th December.

However subsequent polls have pointed to Labour closing the gap with the Conservatives, shaking confidence that Johnson will be able to secure enough votes to prevent a hung parliament.

This may see Sterling sentiment dampen this week, as markets fear a hung parliament will prevent Johnson from passing his Brexit withdrawal deal and cast even greater uncertainty over the whole process.

Alongside the latest UK polling data, GBP investors will also be keeping an eye out for the next head-to-head debate between Johnson and Labour leader Jeremy Corbyn.

The leaders’ previous debate was widely considered to be a draw, but a similar outcome on Friday could still benefit Corbyn more given his underdog status.