Steady RBA Policy Dents Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate
The Reserve Bank of Australia (RBA) signalled its intention to leave interest rates on hold for longer today, causing the Pound Australian Dollar (GBP/AUD) exchange rate to falter.
Even though the central bank lowered its 2019 growth forecast from 3.3% to 2.5% this failed to put any particular dampener on the mood towards the Australian Dollar (AUD).
With interest rates appearing at no risk of falling in the near future investors saw fresh incentive to favour the antipodean currency over its rivals.
Increased hopes for an imminent preliminary trade agreement between the US and China also helped to fuel demand for the Australian Dollar on Tuesday.
Reports that the US would roll back some of its recent tariffs on Chinese products and predictions that a resolution to the long running US-China trade war might be reached this month bolstered a general sense of market risk appetite, lifting AUD exchange rates.
Stagnant UK Service Sector Limits Pound Sterling (GBP) Appeal
Pound (GBP) sentiment faltered today in the face of another underwhelming UK PMI.
October’s services PMI saw modest improvement, climbing from 49.5 to 50.0, but the data still signalled a month of stagnation for the sector.
As the UK’s primary growth engine, a struggling service sector at the start of the fourth quarter will put pressure on Sterling and paints a gloomy picture for the British economy.
With lingering Brexit uncertainty weighing on the economic outlook, investors see little likelihood the sector will recover lost growth momentum in the months ahead.
Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, commented:
‘The sector’s main difficulties are largely of Brexit’s making and with another deadline comes more indecision and delay. Businesses are putting off their investments for happier times and consumers are saving their pennies in case rising costs have a more severe impact on their daily lives. Companies are waiting for a resolution by the UK Government to salvage the current situation so workflows can begin again at healthier levels.’
Narrowed Australian Trade Surplus Forecasts to Weigh Down AUD Exchange Rates
The mood towards the Australian Dollar could sour on Thursday as analyst predictions suggest a narrowing of the trade surplus.
With the impact of ongoing global trade tensions persisting, investors expect to see the Australian trade surplus narrow from 5.9 billion to just 5 billion in September.
If this deterioration is driven by a drop in export volumes, AUD exchange rates look set to come under renewed pressure.
With the Australian economy vulnerable to a global slowdown and the lingering US-China trade dispute weighing on the country’s economic outlook, a loss of trade would put pressure on the Australian Dollar.
However, given the dovish sentiment on display at the RBA’s policy meeting, the negative impact of any weakening in trade conditions may prove limited.
AUD exchange rates could also find a fresh boost if the US follows through with their announced intention to roll back Chinese tariffs implemented in September.
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