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Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Fluctuates on RBA’s Neutral Outlook

Pound Australian Dollar (GBP/AUD) Exchange Rate Fluctuates as RBA Predicts Weaker Economic Growth

The GBP/AUD exchange rate has slipped over the course of the afternoon, and is currently trading at an inter-bank rate of AU$1.8244.

This morning the Reserve Bank of Australia (RBA) released its Monetary Policy Statement, where it predicted weaker economic growth, poor wage growth, and a struggle lifting inflation and lowering unemployment in the years ahead.

Following this, the Pound Sterling Australian Dollar (GBP/AUD) exchange rate rose, with the statement giving reasons for why the bank has adopted a neutral outlook for Australia’s cash rate.

The statement noted:

‘Domestic economic conditions have been a bit softer than were expected at the time of the November Statement. As a result, the forecast for GDP growth has been revised slightly lower. In summary, GDP growth is expected to be a little above trend over the forecast period and underlying inflation is expected to pick up to 2% by late 2019 and to be a little higher in the following year.’

Australian Dollar (AUD) Slips as US and China Far from Trade Agreement

US President Donald Trump, when asked during an event in the Oval Office whether there would be a meeting between himself and his Chinese counterpart, Xi Jinping before the deadline set by the two to reach a trade agreement, simply stated ‘no’.

This has dampened hopes that there would be a quick trade agreement, increasing anxiety around global risk and thereby causing the GBP/AUD pairing to rise.

Further dampening the risk-sensitive Australian Dollar was a report in The Wall Street Journal that the US and China were so far from an agreement they did not yet have anything in writing.

Thursday saw White House Economic Advisor, Larry Kudlow, say that in terms of an agreement, there was a ‘pretty sizeable distance to go’ before an agreement would be made, although he added that Trump was ‘optimistic with respect to a potential trade deal.’

Yesterday: Pound (GBP) Rallies on BoE and Carney Comments

Yesterday saw a rise in the Pound Australian Dollar (GBP/AUD) exchange rate following the interest rate decision from the Bank of England (BoE), in which rates were left unchanged at 0.75%.

Further upswing in positive sentiment for the Pound came from comments from BoE Governor Mark Carney, who stated:

‘The fundamentals of the UK economy are sound. The financial sector is resilient. Corporate balance sheets are strong, and the labour market is tight.’

Although Carney did emphasise that the UK was not ready for a no-deal Brexit, he assured investors that the bank would do its best to keep inflation close to the 2% target ‘whatever the weather.’

GBP/AUD Outlook: Will Australian Consumer Confidence see AUD Rally?

The start of next week could see the GBP/AUD pairing slide as the UK’s GDP for Q4 is due to be released.

Forecasts signal that the figure will show slower quarter-on-quarter growth than previously.

The Pound could be further dented by the release of the year-on-year manufacturing production figure, which is expected to contract by -0.7%.

The ‘Aussie’ could see an upswing of support if the Westpac Consumer Confidence survey for February increases on Tuesday from the previous figure of -4.7%.

Brexit is also likely to remain in the spotlight, with the GBP/AUD pairing rising if there are any signs that Prime Minister Theresa May is able to make significant progress in her attempt to get ‘alternative arrangements’ in place regarding the Irish backstop.