GBP/AUD Exchange Rate Rises as RBA Avoids Rate Cut
The Pound Australian Dollar (GBP/AUD) exchange rate is on the back foot this morning as AUD investors were relieved by the Reserve Bank of Australia’s (RBA) decision to keep rates on hold this month.
At the time of writing the GBP/AUD exchange rate is down around 0.4% this month, leaving the pairing trading at around AU$1.8658.
Australian Dollar (AUD) Buoyed by RBA Relief
The Australian Dollar (AUD) strengthened during the Asian session on Tuesday, rising against the Pound (GBP) and the majority of its other peers in the wake of the RBA’s latest rate decision.
Ahead of the meeting markets had priced in a roughly 50% chance that the bank could cut rates this month, leading the ‘Aussie’ to tick higher as AUD investors unravelled their positions after the RBA voted to leave interest rates on hold again in May.
However, whilst the RBA may have kept rates on hold this month, the bank made it clear that a potential rate cut remains on the table this year, especially as slack in the labour market remains a concern.
RBA governor Philip Lowe said:
‘[The RBA] recognised that there was still spare capacity in the economy and that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target.
‘Given this assessment, the board will be paying close attention to developments in the labour market at its upcoming meetings.’
While markets are now only pricing in a 20% chance of the rate cut when the RBA next meets in June, the odds rise to 100% by the end of the summer.
GBP/AUD Exchange Rate Forecast: Will an Uptick in UK GDP to Boost the Pound?
Looking ahead, the Pound Australian Dollar (GBP/AUD) exchange rate looks likely to rebound later in the week as the UK publishes its latest GDP reading.
Economists forecast that growth will have picked up again in the first quarter, jumping from 0.2% to 0.5% and likely helping to strengthen Sterling.
However any gains in GBP maybe tempered somewhat by the accompanying business investment figures, with Brexit uncertainty likely to have resulted in firms continuing to avoid pumping capital into the UK.
Meanwhile, the Australian Dollar could find itself paring its gains over the coming days as renewed tensions in US-China trade talks threatens to dent market risk-appetite.