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Pound Australian Dollar (GBP/AUD) Exchange Rate Rises as RBA Rate Cut Fears Increase

GBP/AUD Exchange Rate Edges Higher, Could the RBA Cut its Interest Rates Next Month?

The Pound Australian Dollar (GBP/AUD) exchange rate rose by 0.7% today, with the pairing currently trading around AU$1.912 as Australian markets begin to price in a possible rate cut from the Reserve Bank of Australia (RBA) as early as February, due to the worsening Australian wildfire situation.

The US investment bank, Goldman Sachs, said in its statement:

‘The RBA to flag downside risks to the outlook from the bushfires in its February Statement on Monetary Policy, but don’t expect the fires to materially impact its central forecasts or policy decision at this stage. [Also,] the government’s deployment of military assets, could provide a larger-than-expected boost to government consumption.’

Meanwhile, escalating tensions between the US and Iran are threatening to throw the global political and economic situation into further chaos, dampening market confidence in the risk-sensitive Australian Dollar (AUD) today.

Australian Dollar traders are becoming increasingly concerned that souring US-Iran relations could have a knock-on effect on US-China relations, compromising the likelihood of a 15th January trade deal between the two superpowers.

With China being Australia’s largest trading partner, this has compromised some of the ‘Aussie’s gains against the Pound today. Any further signs of a breakdown between the US and China, however, will prove AUD-negative.

GBP/AUD Exchange Rate Rises on Growing Brexit Optimism

The Pound (GBP) rose against the Australian Dollar (AUD) due to growing optimism over Brexit’s progress, with the House of Parliament generally expected to pass through Prime Minister Boris Johnson’s revamped Brexit Withdrawal Agreement Deal largely unchallenged.

This follows on reports that the Government would re-open Brexit discussions with the President of the European Commission, Ursula von der Leyen, as the Conservatives race against time to secure a free trade deal with the EU before the 31st January Brexit date.

The Pound’s gains, however, may be short-lived as Brexit discussions are set to continue this week. Any signs that Boris Johnson could successfully shorten the UK-EU transition period would likely leave UK markets feeling jittery on the increased prospect of a no-deal cliff-edge later on this year.

GBP/AUD Outlook: Could the ‘Aussie’ Continue to Sink on US-China Trade Deal Uncertainty?

‘Aussie’ investors will be looking ahead to tomorrow’s release of November’s Australian Building Permits figure, which is expected to rise from -8.1% to 0.4%.

Tomorrow will also see the publication of the influential Australian AiG Performance of Construction Index for December, with any signs of improvement last month bolstering optimism Australian Dollar.

US-China trade developments will, however, continue to drive the AUD/GBP exchange rate, with any signs of relations between the two superpowers deteriorating ahead of the 15th January Trade Deal sign-off date weakening the risk-sensitive ‘Aussie’.

Brexit will continue to remain in focus for Sterling investors this week. However, we could see the GBP/AUD exchange rate begin to ease if there are any further indications of Brexit uncertainty on the horizon.