Dovish Signal from RBA Fails to Lift Pound Australian Dollar (GBP/AUD) Exchange Rate
The Reserve Bank of Australia’s (RBA) September meeting minutes were not enough to boost the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate as market risk aversion diminished.
Although policymakers indicated that a weaker Australian Dollar (AUD) would benefit the domestic economic recovery investors instead focused on the RBA’s reluctance to deliver any specific action.
As the central bank looks set to remain in wait-and-see mode in the near future AUD exchange rates found renewed traction.
News that Chinese industrial production had picked up further than forecast in August encouraged the risk-sensitive Australian Dollar, meanwhile.
Hopes that the Chinese economy could bounce back from the impact of the Covid-19 pandemic sooner rather than later added to the pressure on the GBP/AUD exchange rate on Tuesday.
Negative UK Inflation Rate Set to Drive Fresh GBP/AUD Exchange Rate Loses
Support for Pound Sterling (GBP) faltered, on the other hand, as UK redundancies rose at their fastest rate since 2009 in the three months to July.
This uptick came in spite of the presence of the government furlough scheme, even with 5 million workers still participating in July.
The increase raised fears that a greater spike in unemployment may be in store in the third quarter thanks to the impending withdrawal of government support.
Further weakness for the GBP/AUD exchange rate could stem from August’s UK consumer price index report.
As forecasts point towards inflation weakening on the month, dipping from 0.4% to -0.6% in the face of Covid-19 disruption, the case for greater Bank of England (BoE) dovishness looks set to increase.
A negative month of inflation would not encourage confidence in the underlying health of the UK economy, leaving investors with little reason to buy into the Pound this week.
With the odds of a potential no-deal Brexit scenario still heightened in the wake of the first parliamentary vote on the controversial Internal Market bill the room for a GBP/AUD exchange rate rally appears limited.
Soft Westpac Leading Index Forecast to Weigh on Australian Dollar
However, with forecasts pointing towards another lacklustre monthly reading from the Westpac leading index the appeal of the Australian Dollar could fade on Wednesday.
Another 0.1% reading would highlight the persistent sluggishness of the Australian economy, fuelling concerns that the recovery from the Covid-19 crisis could take some months yet to materialise.
On the other hand, the antipodean currency could benefit from an improvement in August’s HIA new home sales index.
Evidence that the housing market began to recover from its pandemic slump may offer some cause for confidence in the economic outlook.
AUD exchange rates also look set to experience volatility on the back of the Federal Reserve’s September policy announcement.
If Fed policymakers prove more dovish in outlook this could give the Australian Dollar a fresh boost against its rivals as the safe-haven US Dollar (USD) weakens.