The Pound Australian Dollar outlook brightened today as markets responded to news that the RBA downgraded its growth outlook and that the EU has given the UK a 2-week deadline to agree on a divorce sum if it wants to begin trade talks in December.
RBA Downgrades its Growth Outlook, GBP AUD Exchange Rate Outlook Climbs
The Reserve Bank of Australia downgraded its economic growth outlook in its quarterly statement on monetary policy this morning, signalling only a small rise in future headline inflation.
The RBA revealed that it sees growth in December this year easing back to 2.5%. A year ahead, the bank is hoping to see economic growth of 3.25%, downgraded from the previous forecast of 3.75%.
Despite this drop, the RBA does continue to see the economy expanding at a ‘solid pace’ in the years ahead, citing the positive developments in the labour market as the primary reason.
On the inflation front, the bank sees headline inflation not touching 2.25% until December 2018, leaving it well below the bank’s target and further diminishing the chance of a rate hike in 2018.
The RBA also cited various worries about low wage growth, with the statement asserting that limp wages are also to blame for the poor inflation reading.
This forecast painted a slightly less optimistic picture for the economic potential of Australia into 2018 and left the outlook for GBP AUD increasingly positive.
Brexit Deadline Brightens GBP AUD Exchange Rate Outlook
EU Chief Negotiator Michael Barnier revealed at a press conference today that unless the UK makes some form of concession towards agreeing a divorce sum within 2 weeks December trade talks will not take place.
This news comes following many months of negotiation deadlock, with the UK hesitant to agree to a divorce sum as it could disadvantage them moving ahead in negotiations and the EU refusing to discuss trade until a divorce sum is agreed upon.
The market reaction to this news was positive, with many hoping that the 2 week deadline will force progress of some form – particularly with UK Prime Minister Theresa May insisting at the recent Florence speech that the UK is willing to pay 20 billion Euros towards this end.
Markets will likely watch political announcements on this front with increased intensity in the weeks ahead, with any indication that progress is being made liable to catapult the Pound and any indication that the UK will miss its 2 week window liable to really diminish demand.
GBP AUD and UK Inflation in the Week Ahead
The week ahead will feature a lot of significant UK data releases, including inflation, the retail price index, employment figures and retail sales.
Markets are currently expecting the UK’s inflation print in October to continue climbing past 3.0%, though any result below this could push the Bank of England (BoE) even further towards a dovish standing.
On the Australian front, markets will be watching next week’s NAB business confidence reading for October, the Westpac consumer confidence index for November, Australian employment readings and the US inflation figures, with any positive jump in the ‘Greenback’ liable to put the ‘Aussie’ Dollar under pressure.