GBP to AUD Steady as Markets Consider BoE and RBA Rate Cuts

The GBP to AUD interbank exchange rate remains supported at its current levels, in part because the financial markets are considering the possibilities that the Bank of England (BoE) and the Reserve Bank of Australia (RBA) could cut interest rates in the foreseeable future, although for different reasons.

Looking at the UK first, the Old Lady of Threadneedle Street, as the BoE is affectionately known, could cut interest rates, because UK inflation fell further in December.

According to the Office for National Statistics (ONS) on Wednesday, UK price pressures eased by 0.2% last month, down to 1.3%, further below the BoE’s official 2.0% target.

Generally, falling inflation points to a slower economy. So this could convince the UK central bank to ease monetary policy to support the economy in early 2020. The BoE makes its next interest rate decision on January 30th, so we’ll see what they decide, and its effect on sterling.

Moreover, it’s worth noting that several BoE policymakers have made remarks recently, suggesting that they might vote to cut UK interest rates, if economic growth doesn’t pick up.

Since last Thursday, Governor Mark Carney, as well as three other colleagues on the nine-person Monetary Policy Committee (MPC) have all suggested that they might vote to ease monetary policy from 0.75%, back to 0.5%.

For example, yesterday MPC member Michael Saunders told a college in Northern Ireland that “it probably will be appropriate to maintain an expansionary monetary policy stance.” So this too is weighing on the value of sterling.

Australia’s central bank is being increasingly tipped to cut interest rates, also below their current 0.75% to an all-time low of 0.5%.

In the RBA’s case, this is because bush fires are destroying vast swathes of Australia’s territory, weakening both household and business confidence.

As a result, the Reserve Bank might lower borrowing costs, to try and support the economy during this natural disaster. The RBA next meets on February 4th, so we’ll see their decision, and its effect on the AUD.

For more pound and AUD news, keep up to date with our daily blogs. Alternatively, if you have a currency requirement you can get in touch on +44 (0)1494 416 503 to discuss these factors in more detail or contact me directly at dcj@currencies.co.uk.

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