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Pound Australian Dollar (GBP/AUD) Exchange Rate Rallies on Lowered RBA Economic Forecasts

Australian Dollar Currency Forecast

Signs of RBA Caution Boost Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate

As the Reserve Bank of Australia (RBA) lowered its economic growth forecasts this encouraged the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate to bounce back.

While the RBA acknowledged the risks of cutting interest rates again, particularly with regards to the domestic housing market, this failed to shore up the Australian Dollar (AUD).

The acknowledgement that wage growth is unlikely to see any material improvement in the near future suggests that the prospect of a return to a monetary tightening bias is equally distant.

On the other hand, markets still see a risk that the central bank may have to ease monetary policy in the months ahead in order to stimulate economic growth.

With the RBA looking increasingly backed into a corner thanks to a combination of high household debt and slowing economic momentum investors saw little reason to favour the Australian Dollar.

Rising UK House Prices Offer Pound Sterling Encouragement

Signs of strengthening in the Halifax house price index helped to boost demand for Pound Sterling (GBP), meanwhile.

A modest 0.4% monthly uptick in house price growth encouraged hopes that the UK economy got back on track at the start of 2020.

Evidence that households adopted a more positive outlook in January suggests that wider sentiment could see a similar improvement on the month.

However, as a significant degree of uncertainty continues to hang over the UK economy this sense of market optimism could prove short-lived.

The release of the fourth quarter UK gross domestic product data could see the GBP/AUD exchange rate stumble on Tuesday.

If the quarterly growth rate fails to show an acceleration this may prompt investors to sell out of the Pound once again, given the existing risk of a first quarter slowdown.

As long as worries over the future relationship between the UK and EU persist this may keep GBP exchange rates biased to the downside.

Australian Dollar Looks for Rally on Stronger Chinese Inflation

The mood towards the Australian Dollar could see some improvement next week if January’s Chinese inflation rate picks up as expected.

A stronger Chinese inflation rate would encourage a greater sense of confidence in the outlook of the world’s second-largest economy, benefitting the risk-sensitive antipodean currency.

As the Australian Dollar commonly functions as a market proxy for the health of the Chinese economy a stronger showing here could see AUD exchange rates trending higher.

However, as long as the spread of the Wuhan coronavirus continues to disrupt global trade the Australian Dollar may struggle to find a positive footing against its rivals.

An improvement in January’s NAB business confidence index may offer AUD exchange rates a rallying point, though.

Evidence that Australian business sentiment improved at the start of 2020 could see the GBP/AUD exchange rate stuck on the back foot once again.