Mixed U.K. Data Leads to Muted Activity for AUD/GBP Exchange Rate

Pound Trading Higher but Markets on Alert as Fears of a Virus Pandemic Grows

The release of U.K. Gross Domestic Product (GDP) figures for the fourth quarter saw a mixed bag of data and led to muted volatility in the GBP v AUD exchange rate.

The UK economy avoided contraction in the fourth quarter alongside an upwardly revised 0.5% expansion in Q3. The data saw annual growth figures matching market expectations, however an increase in government spending and weak household spending led to a cautious trading day.

The market took the positives from the data and rallied to the 1.9300 level, but this area kept a lid on price as it dipped towards 1.9250, before closing at the 1.9300 mark again.

Carney Welcomes New Government’s Spending Plans

The Bank of England’s Governor offered his backing to Prime Minister Boris Johnson’s spending plans in a speech to the Lords Committee. Carney also welcomed the focus on improving productivity in weaker areas of the country, stating that if the rest of the country could match Greater London then the economy would be a third larger.

The outgoing Governor who steps down next month, also reiterated his earlier comments that such spending plans will reduce the likelihood that the Bank will have to cut Britain’s interest rate in the year ahead. The comments by the bank will lend some support to the pound vs Australian dollar until more post-Brexit data and trade developments are known.

New Zealand Keep Rates Steady at 1%

The Reserve Bank of New Zealand held their key interest rate at 1%, which was largely expected, however the Kiwi rallied as the reference to further rate cuts down the line was removed in the forecast.

Some analysts saw the potential for the RBNZ to cut their rate to the same 0.75% level as the Aussie economy. The latest development should keep the Kiwi stronger against the Aussie Dollar in the near-term and this will benefit Australian exporters at a time when the economy is under pressure from the recent bushfires.

Attention will now turn to Australian inflation data released in the early hours of Thursday, where the figure has risen from 3.1% to 4.7% since September. Although the trend has been higher, it’s likely that traders will await further economic data related to the bushfires before making any real assumptions on the country’s interest rate policy.

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