Daily Archives: August 22, 2019

Could we see Monetary Stimulus from the RBA? (Daniel Johnson)

Pound to Australian Dollar Forecast

This year the Reserve Bank of Australia (RBA) has continued to cut interest rates leaving the base rate at a record low of 1%. The change in monetary policy has so far failed to stimulate growth in the Australian economy which has resulted in the RBA board looking at  alternative methods of stimulus to try and aid the struggling economy.

There is the potential that quantitative easing (QE). QE is essentially pumping money into an economy in order to stimulate growth, printing money causing huge levels of debt.  The minutes of the RBA’s July meeting revealed that these unconventional monetary policy measures were discussed.

Both the Pound and the Australian Dollar are under pressure at the moment, although for different reasons as the Australian Dollars are mostly due to economic uncertainty as opposed to the UK’s ongoing political issues.

Over the past year the GBP/AUD rate is almost flat although in recent months the Aussie Dollar has mostly benefited from Sterling weakness which has kept GBPAUD below 1.80 for almost 2-months now.

The time scale for a deal on Brexit does not make good reading. Parliament is not due to reconvene from recess until early September which will leave just under eight weeks for Boris Johnson to get a deal in place. This is something Theresa May couldn’t do in over two and a half years.

Boris has threatened to leave the EU with no deal in place and has said he is not willing to negotiate with Brussels unless they’re willing to drop the Irish back stop. This is something Brussels have stated on numerous occasions they are not willing to do. The situation has not been taken well by investors and sterling has fallen in value as a result.

There is also the possibility of a general election and it will be interesting to see how the market will react. If we look at the 2010 general election for example, we saw sterling lose value due to the political uncertainty, but if Corbyn were to call for an election the probability of a no deal decreases which could cause a rally for the Pound.

The higher probability of a no deal the weaker you  could expect the pound to become.

Despite the problems surrounding the Australian economy unfortunately it seems that the problems surrounding Brexit outweigh those down under. Until there is some sort of clarity surrounding the Brexit debacle, there could be little reason to justify significant gains for the pound.

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If you would like my assistance I can be contacted at dcj@currencies.co.uk. Thank you for reading. Daniel Johnson