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Pound Australian Dollar (GBP/AUD) Exchange Rate Slips as RBA Opts for Neutrality

Australian Dollar Currency Forecast

Steady RBA Decision Encourages Australian Dollar (AUD) Exchange Rate Gains

In the wake of the Reserve Bank of Australia’s (RBA) final rate decision of 2019 the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate remained on the back foot.

While markets had not anticipated any change in monetary policy at this stage the Australian Dollar (AUD) still reacted with relief as policymakers opted for a neutral outlook.

As Governor Philip Lowe indicated that the economy has reached a ‘gentle turning point’ this encouraged hopes that the central bank could take an increasingly optimistic view in 2020.

However, markets still see high odds of the RBA cutting interest rates next year, particularly if domestic data continues to disappoint.

With global trade tensions looking set to escalate in the days ahead, given the announcement of further US tariffs, AUD exchange rates could struggle to hold onto a positive footing for long.

UK Construction Contraction Keeps GBP/AUD Exchange Rate on Back Foot

A slight positive revision to the UK construction PMI was not enough to shore up Pound Sterling (GBP), meanwhile.

Although November’s finalised reading of 45.3 was an improvement on the initial estimate this still signalled a month of contraction for the sector.

Commenting on the report, Tim Moore, Economics Associate Director at IHS Markit, noted:

‘UK construction output fell again in November as Brexit uncertainty and the forthcoming General Election continued to send a chill breeze across the sector. The speed of the downturn in construction work eased a little since October, but the survey continues to signal a notable drop-off in business conditions compared with the first half of 2019.’

All in all, this did not offer a particularly encouraging signal for the economic outlook, adding to fears of a potential fourth quarter growth contraction.

If the corresponding services PMI also confirms a slowdown in activity the GBP/AUD exchange rate could see further losses in the near term.

Third Quarter GDP Acceleration Set to Boost Australian Dollar

The Australian Dollar may find additional support on Wednesday as forecasts point towards an uptick in the third quarter gross domestic product.

With markets anticipating an annual growth rate of 1.7% confidence in Australia’s economic outlook appears set to improve.

Evidence that the economy shrugged off global trade worries in order to deliver stronger year-on-year growth could see AUD exchange rates trending higher across the board.

A stronger showing here may reduce the odds of the RBA cutting interest rates multiple times in 2020 as worries over the health of the Australian economy ease.

However, as long as unemployment and inflation data continue to underperform the risk of further RBA dovishness looks set to linger.

Any further escalation in global trade tensions may also weigh heavily on the Australian Dollar in the days ahead, particularly if hopes of a US-China trade breakthrough continue to fade.